Never ones to be outdone, we at ReadWriteWeb have labored intensely and discussed among ourselves to produce this app wishlist. We can't offer funding, but it would make us picky little Internet geeks terribly happy if someone developed any of the six apps listed below. You know, while we're waiting for the flying cars and food replicators.

2. Full-Length Movies on Mobiles
It's a matter of time, we're sure, before you look next to you on a subway and see a guy watching V for Vendetta on his iPhone. Movies are getting quicker to stream and more mobile, and mobile video display is a quickly-aligning Rubik's cube. A combination of the right coding technology, the right player, and the right partnership with a giant such as Hulu or Netflix could allow some lucky startup to charge the pants off of mobile users per movie. Plus, it'd be a great trick to keep the kids quiet in restaurants or church or wherever, and who, parents and non-parents alike, can't get behind an idea like that?

3. Multiplayer Augmented Reality Social Gaming
A few months ago, we found out what Crash Corp was up to, and that bee has been in our bonnet ever since. Augmented reality mobile gaming is definitely the frontier of its space. It's a gamble getting gamers away from their hotly-defended consoles, their PCs laden with expensive video cards, and all the games and ways of game playing they know. That would be, shall we say, a game changer. Ha ha. But we feel the coolest, most hardcore application of AR gaming can be achieved through multiplayer, socially enhanced, RPG-type games as opposed to the kind of casual games that isolate rather than connect users and don't tend to induce hours of Mountain-Dew fueled play. Something like foursquare is the embryonic, interface-free, back-end concept for what mobile gaming will become. We predict that in five years, all gamer geeks will have farmer's tans. Also, the addition of semi-virtual currency in marketing promotions that are location- and proximity-based make AR mobile a brand's most fantastic dream.

4. Real-Time Social Streams as Gesture-Responsive, Dimensional Displays
It's 2009. We don't have any flying cars. We don't have a moon colony. We've waited this long, and we want SOMETHING, damn it. Give us our Minority Report-esque gesture-controlled holographic displays, or at least a BumpTop-like 3D app that can handle concepts such as relative size and weight of discussions, apps, and other users. With existing apps such as Seesmic Desktop and its ilk becoming real-time and constantly present, we see our entire social graph's firehose glutting the data stream with absolutely too much information until it truly becomes the time-waster the mainstream claimed it was all along. We now need an app that can imaginatively and radically simplify statuses and microblogging and how we receive and parse them, and we're talking TED-level imagination. Why anyone that brilliant would want to work on social media projects is anyone's guess, but hey, it's our wishlist.

5. Shopping App for Thrift Stores
We can't believe some hipster hasn't picked up on this already, but someone ought to develop a web and mobile app specifically for thrift stores, kind of like TheThriftShopper, but much more than a directory. We want to see locations, reviews, sales and specials, pics of good finds, and a social community for organizing ugly sweater parties! With the revolving door that is any second-hand shop's inventory, it's probably not reasonable to ask for an Internet of Things-type cataloging program -- yet. But it would be simple and fun enough to use certain APIs to create this kind of mashup.

6. Personal Inventory and Shopping App
We've seen several trade-and-barter apps lately, such as NeighborGoods and OurShelf, that allow users to catalog items they already own and request those they need. And there are a few good shopping applications, such as Alice, out there, both in terms of inventory control as well as social shopping. But coming back to the Internet of Things, what we want is more inclusive and integrated than anything we've seen yet. We would like someone to develop a way to manage multiple home shopping lists, including groceries, book/DVD wishlists, etc., that sync with retailer inventories and send mobile alerts. It would also require a mobile app that allows shopping to be completed and automatically updates web-based lists accordingly. Eventually, this is the kind of tech that could be used to create truly smart shopping carts, as well.

As incredible as it may seem, there are corners of the Internet upon which the RWW team has not stumbled. If you know of any good apps that fit these categories, be sure to let us know in the comments!

Also, if you've got a wishlist of your own, feel free to share below.

There was a myth that Israelis were not very good at creating consumer-facing products. Notwithstanding their creation of ICQ, Israelis were known as engineers and researchers who did well within the confines of a lab but not so well when reaching out to end consumers. Over the last couple of years, though, the high-tech industry in Israel has gone through dramatic changes.

The stars of the Israeli tech scene were once companies like Comverse and Amdocs. Now, we're seeing an influx of great Web 2.0 media and social startups, such as:

• FoxyTunes, the Firefox plugin that allows users to control iTunes directly from their browser, and which was acquired by Yahoo for a reported $30 million;
• MyHeritage , the world's largest family network, which has already documented over 330 million family members and is reportedly bringing in some of the highest revenue of any Israeli Web startup;
• Kaltura, an open-source platform for the creation and consumption of rich-media Web applications, whose clients include Wikipedia, Universal Studios, Coca-Cola, and Pepsi.

So, what's in store for Israel's startup world?

Israel succeeds by blending the old with the new. The country will continue to exploit its innate talent for research and development and continue to make inroads with social media applications, all the while sticking to intensive, customer-driven products.

A few Israeli newborns to keep your eyes on:

• SimilarWeb, an intelligent add-on that sits in your browser and provides easy access to websites with similar content;
• Boxee, a cross-platform freeware media center with social networking features and a 10-foot user interface design for the living-room TV;
• CamSpace, a new interface for computer games that uses innovative computer vision technology that allows everyone with a webcam to play games Wii-style;
• Vetrina's, a virtual window-shopping platform that transforms the online shopping experience.

The glue holding this generation of Israeli startups together is that while the companies are now all consumer- and media-related, they have a more technological edge than can be found in companies elsewhere. You can take the engineers out of the lab, but you can't take the lab out of the engineers.

Guest author Ayelet Noff is one of Israel's most renowned bloggers. She is also the founder and CEO of Blonde 2.0, a full consultancy firm whose mission is to help brands understand how to use social media tools (social networks, the blogosphere, and social software) effectively in order to carry their messages across the globe.

After years of work and more than $20 million dollars invested, the company is finally looking at the light of the end of the tunnel: Turning a profit. In this exclusive interview with founder Tim Westergren after a town hall meetup in Richmond, Virginia, we discuss the company's close call with bankruptcy in 2007, their ad-based revenue model, their roadmap for adding new features and an open API, and their incorporation into a variety of hardware devices.

Now, however, the "unwitting nonprofit" is closer than ever to growing revenues larger than their expenses, news the investors will surely be ecstatic to hear.

In addition to recording this one-on-one talk with Westergren, we also captured about 20 uncut minutes of his talk to Richmond fans and users. Watch for the fuller story of Pandora's trials, triumphs, and evolution, including an extended discussion of the utterly unscalable but nevertheless fascinating Music Genome Project.

Speaking directly to this concern (or phenomenon, depending on your perspective), two students at the New York University Stern School of Business and a former MySpace IT director have started FledgeWing, a new social network that aims to connect aspiring student entrepreneurs with one another as well as with mentors, investors, and industry professionals.

Students present brief descriptions of their projects along with goals and objectives; the UI acts as a light project management, task-tracking app. Others may leave comments or request to join the project.

The case studies are presented as business challenges within the tech/social media world and range from the creation of a retail outlet for Microsoft to the development of a business model for Twitter. Students are encouraged to submit their case studies as comments, attaching any necessary documents to validate or clarify their POV.

The site also has been categorized by areas of interest; and different forums, students, mentors, and companies appear in each category.

Co-founder Lewis Drummond said his team is "bringing together the brightest and most creative minds during a time when then entire structure of business is changing.

"The site has a large database of mentors, companies, and jobs... FledgeWing also regularly hosts all-expenses paid networking events... along with business plan competitions with cash prizes. Entrepreneurial clubs can participate in and host forums, while a feedback-style rating system and comprehensive intellectual property agreement ensure quality control and legal protection for both users and club moderators. Additionally, clubs can create events and have a place for users to collaborate together on specific projects."

In addition to bridging the gap between professional and student entrepreneurialism, the site also intends to encourage more cooperation and collaboration between student entrepreneurs and supporting organizations at different universities.

We find the heavy emphasis on business (as opposed to straight tech) an interesting and valuable approach to the aforementioned structural changes going on in our industries. As we noted in a previous article on IT and journalism student collaboration, bringing different disciplines together with an emphasis on pragmatic creation and measurable action is sure to yield mutually beneficial results for all involved. In this case, from perusing the student projects and comments, we notice a trend toward bootstrappable startups - a welcome mindset in the current economy.

Fledgewing also represents a trend we've noticed toward project-driven social-professional networks that focus on active collaboration and partnership. IBM has recently launched two such sites, one for developers and one for business partners.

What do you think: Is this breed of social-political online groups a valuable networking tool that can lead to successful projects in reality? And is interdisciplinary collaboration the best route to better, more viable startups? Let us know your thoughts in the comments.

However we have heard very few stories about Zuckerberg and the inspiration behind Facebook during the period prior to February 4th, 2004, the day he launched Facebook from his Harvard dorm room. In this post we tell that story.

The reason we hear so little about Zuckerberg's pre-launch vision for Facebook (which was originally called thefacebook.com) is likely because he has been a controversial target over the true origins of his business. In 2007, several of Zuckerberg's classmates came forward and claimed rights to the Facebook idea after reports surfaced that Yahoo had offered $900 million to purchase Facebook just two years after the founding of the company. Even though the suit against Zuckerberg was settled last year, given the nature of the proceedings, we'll likely never get an official answer from Zuckerberg himself about the true origins of his inspiration. But maybe we don't need one after all?

It turns out that Zuckerberg's academic history offers a great deal of insight into the inspiration for Facebook and why it was so wildly successful when it first launched. February 4th, 2004 may mark a major milestone in Facebook's history, but the story of Mark Zuckerberg's rise to fame in fact starts years before he stepped foot on the Harvard campus, and is much more complex and interesting than is usually portrayed.

Pre-Zuckerberg: Tracing the Roots of Facebook Culture

You may be surprised to hear that while Harvard was fertile ground for the launch of Facebook, the seed of the concept was likely planted in Zuckerberg in high school. You never hear about Zuckerberg's alma mater Phillips Exeter Academy in stories because Harvard was where the action really started (and the Harvard name, to some extent, validates Zuckerberg's smarts and makes for a more sensational story). But in fact, the time that Zuckerberg spent at the academy from 2000 to 2002 likely had more influence on the name and initial concept of Facebook than any of his classmates at Harvard.

Phillips Exeter Academy (or "Exeter") is a private boarding school for grades 9 to 12, located in Exeter, New Hampshire. The prestigious prep school is a member of the Ten Schools Admission Organization, which includes such famous boarding schools as Phillips Andover, Deerfield Academy, St. Paul's, and Choate Rosemary Hall. Like the other "Big Tens," Exeter has a tight-knit boarding community that lives on campus full time. Students refer to themselves as "Exonians" and have a strong group identity rooted in a rich culture of customs and tradition.

An Exonian for two years, Zuckerberg had plenty of time to observe and participate in the social culture and rhythms ingrained in Exeter's boarding lifestyle. Every year, the school says goodbye to a few hundred students and welcomes a few hundred more. Zuckerberg enrolled in the fall of his junior year and, like every new and returning student, received his own copy of Exeter's student directory, "The Photo Address Book," which students affectionately referred to as (you guessed it!) "The Facebook."

We interviewed several of Zuckerberg's peers this week, and they all confirmed what David W. Farrant (class of 2000) had to say:

"The front cover says "The Photo Address Book," but we all called it "The Facebook" all the time because "The Photo Address Book" was such a mouthful. Everybody called it that."

"Facebook" photo directories were (and still are) a huge part of the students' social experience and culture at prep schools such as Exeter. Every school in the Big Ten prints and distributes one for its students annually. When students arrive on campus each fall, the rhythm of their social lives is predominantly set by their dormitories, their class year (i.e. seniority), and their proximity to friends in other houses. Because students aren't allowed cell phones on campus and living accommodations are in such flux from year to year (they change houses and phone numbers annually), these "Facebooks" are a valuable resource for students.

Of course, not only do students need the directory to find and contact their peers, but the books become part of the culture of bonding between classmates and friends, as students use it to see where their peers live, who's hot and who's not, who lives with who, and who the new kids are. Sounds an awful lot like how people use Facebook online now, right? Of course, it also describes an early pre-Internet social culture, facilitated by photo directories, that students enjoyed long before Zuckerberg even made it to high school, a culture he happened upon and got to participate in by a stroke of pure luck and glorious opportunity.

But the story doesn't end there. In Zuckerberg's senior year, the student council, headed by student body president Kris Tillery, successfully lobbied the administration to have the school's IT department put the full contents of Exeter's Photo Address Book online. By the time Zuckerberg graduated, the website was put up at http://student.exeter.edu/facebook, with the URL directory (i.e. "facebook") named after the students' pet name for the physical book and effectively shortened to something useful. Tillery was unavailable for comment.

In our interviews, some of Zuckerberg's peers pointed us to this screenshot of the original website hosted on the school's .edu domain. The screenshot was posted in the public Facebook group "Exonians" in 2006 and is still there. Some of the comments about the screenshot (which date back to 2007) refer to it as "the original Facebook" and refer to the Photo Address Book as "the physical Facebook."

Of course, the school's student.exeter.edu/facebook website is no longer online, and none of our sources were able to confirm whether Zuckerberg himself was involved in, or responsible for, the student council initiative that got the directory online in the first place. All we know is that students were enthusiastic enough about an online version of the physical directory that the student council made an effort to lobby the administration, that the online directory was created during Zuckerberg's senior year, and that he was likely aware of its existence.

A More Complete Picture of the Facebook Success Story

Now that Facebook has graduated from its academic roots and been released to the world for free, its continued growth has many experts saying it will likely be the dominant social platform for the foreseeable future. At 200 million users (and counting), Facebook makes it hard to doubt that it will have considerable influence in the way we all connect and communicate in the future, both locally and across borders. While we may never know the true origins of Mark Zuckerberg's inspiration for Facebook, looking at the social culture of the prep school he attended and his experiences as a boarding student there offer us insight into where the explosion of global Facebook culture may have begun, why it was so successful when it launched at Harvard, and how luck and opportunity may have led one of the world's youngest visionaries to start coding in his college dorm room.

Steffan Antonas is a technology anthropologist, writer, and blogger who currently lives in San Diego, CA. He began studying human behavior in virtual communities as a graduate student in Georgetown University's Communication Culture and Technology (CCT) Program in 2003. He has worked in Southern California as an IT Professional for the past three years. You can contact Steffan at steffanantonas@gmail.com and on Twitter @steffanantonas.

Image credits: Phillips Exeter Academy by etnobofin. Book cover and Mark Zuckerberg photos by Alex Demas and Mark Flores.

"The question is," he continued, "will you have the passion and the tenacity and the interest to really start something that's important?"

He also discussed Microsoft, where it's been and where it's going, the future of technology and why 'now' is important to entrepreneurs. The video, embedded below, is well worth watching, particularly given Ballmer's 29 years of first-hand experience with one of the world's most innovative technology companies.

Steve Ballmer's Tips to Entrepreneurs

Look around you

Look around you at the people you know, find good people, those are the people to trust when you start something.

Be patient and work hard

Some things that wind up being really important take more than ten years to become really popular. Ballmer points to Windows, SQL Databases (Oracle), Google. While he admits there are a "few exceptions," for the most part it's about hard work

Don't let others dissuade you

"My parents thought I'd lost my mind to drop out of Stanford Business School to go to a company that makes software," Ballmer said. "My dad said 'what the heck is software' and my mother said 'why the heck would a person need a computer?'"

We've embedded the video of the lecture below; it runs about 58 minutes, the first 25 consist of his talk, the rest is made up of Q&A and it is well worth your time if you're considering inventing something new.

BrightKite started as a "nights and weekends" project that they submitted to TechStars, a small funding initiative similar to Y Combinator. TechStars provided mentorship, a bit of seed capital and generally got them off the ground - in return for some equity. BrightKite did a working prototype, then raised an angel round of $1M last year.

I then asked the two companies about how their product plan will be affected, if at all, by the economy downturn. I noted that Zoho has a wide variety of products in their Web Office suite, so for example do they plan to fold some of those into bigger products due to the economy? Zoho replied that they make money from their business applications, rather than their collaboration apps. So they have made it a priority to integrate their collaboration apps into the business apps over the coming year(s). They will also continue to add new apps, however those will be money-making business apps.

I put the same question to BrightKite: has their product plan changed due to the economy? BrightKite replied that it hasn't changed significantly, they were always planning to ramp up the marketing and do more partnerships this year. They also plan to introduce revenue drivers - e.g. location-based advertising and analytics for businesses. Generally the economy hasn't changed their revenue-generating plans too much, although it's perhaps brought it forward by a month or so.

In terms of success factors, Zoho mentioned that "constant innovation" has allowed them to keep ahead of the pack. In the online word processing space, there were around 17 competing apps when they launched Zoho Writer - but continually improving their product helped them keep ahead. Zoho has about 250 staff, so that has helped. On the other side of the staffing coin, BrightKite is a small 10-person team. They believe that being open and iterating on user problems is key for their success.

There are many more tips in the podcast, which we invite you to listen to below. Also let us know your own thoughts on not just surviving, but thriving, in this current economic environment.

Download MP3

Cat pic: fofurasfelinas

It's an interesting story that other entrepreneurs can learn from and Abbott has done a real service in opening up honestly about what's going on at Dandelife.

The basic idea behind Dandelife is that it's a place to record your life story. You can read and comment on other peoples' stories, navigable by time-line, topic or story teller. A lot of people seem to be using the service as a time-line based social bookmarking account for things they find around the web. The site spoke to a universal human need, the need to be heard. Abbott says all that content did well in search engines, too.

When the company launched in the summer of 2006, it had a knockout team of advisors including the grand poo-bah of web design Jeffrey Zeldman, Userplane founder Mike Jones (who sold his company to AOL for $30-$40 million the next month), Bruce Livingstone (who had just sold iStockPhoto for $50 million months earlier) and a list of other luminaries. It was a great team.

Dandelife won a Webby Award in 2007. It made early moves in favor of data portability, tying to the once-celebrated Attention Trust and later implementing Attention Profile Markup Language (APML), the protocol developed by Data Portability Working Group co-founder Chris Saad.

The company got lots of attention. It got written up on Lifehacker, shared on Waxy Links and hit the front page of Delicious Popular.

What Went Wrong?

What went wrong? Apparently all those great backers didn't give Dandelife very much money. At least that's what's implied by founder Abbott last night when he said the site was terribly engineered because he was unable to afford to hire better developers. What's most important, though, is that Abbott says the site suffered down time and took up all his energy in fixing the back end. He's a marketer by trade, but now admits that he's spent almost no time marketing Dandelife. Feature-creep took over instead, he says.

No matter how hard I wanted the site to be successful, and no matter how good the pitch for Dandelife was, I always feared success. Staying small and non-profitable became an excuse for failure to scale. Why won't this site grow? I kept asking myself. But in my heart of hearts, I knew why. I was pouring all of my effort into product development and in particular finding and fixing bugs, that I had no time and no confidence in marketing the site.

Now Abbott says he's going to scale back on features, throw far more time into marketing the company and, most importantly, open source the code. "I think the Internet could use a thousand Dandelifes," Abbott wrote last night. He hopes that some of those new versions of the site will pay him to consult on implementation. That could work well.

Abbot's initial monetization strategy was to leverage the life stories of users (with their permission) in service of brand advertisers - to act as an advertorial farm-team of sorts. I reviewed the service on TechCrunch when it launched and said I thought that was creepy. The company even tried to trademark the term "lifecasting", and any time spent on that was time wasted, obnoxiously even.

It appears now that Dandelife never scaled up enough to be able to pull that branding plan off. Abbot said last night that it's a great site for "people who want to make a difference in the world." Presumably that's a different group than those who want to share stories about drinking Pepsi at a family picnic or looking great in brand name clothes when they went on a memorable first date.

People who like Dandelife like it a lot. There is probably a lot of room for long form personal story telling on the web. The lesson Abbott seems to offer, though, is that launching such a company, even with an all-star advisory crew, a lot of press and solid search engine pull, just isn't enough. Prioritizing quality engineering from the start and remembering to do marketing after the launch are at least as important.

Since its inception in 2007, Vator.tv mostly focused on video, but, as Kedric Van de Carr, Vator.tv's VC of Marketing and Business Development, told us, adding micro-blogging to Vator.tv's arsenal of features was a logical next step. According to Van der Carr, Vator.tv wants to give entrepreneurs the option to give frequent updates about their company that would usually not be worth a press release or even a post on the company blog.

On Vator.tv, you can now follow these companies and their updates will appear in your 'my Vator' tab. Looking at the stream right now, it seems like the companies in the alpha program are making good use of the service and often use it to get input from the community.

Competition for Twitter?

Vator.tv considers itself as a competitor to social networks like Twitter and company blogs, but according to Van der Carr, one of the main advantages of Vator.tv is that it can tell companies who exactly their followers are. Vator.tv gives its users statistics about its followers, including whether they are students, investors, or business owners.

We have seen a lot of specialized social networks lately that weren't very interesting, but judging from the reaction of the companies' in the alpha program, Vator.tv looks like it may have hit upon a nerve within the startup community.

Use of hosted software as a service (SaaS) is growing like crazy, and most products are constantly evolving. What is the best strategy for a tech startup: share its product road map (i.e. its development plans) with the outside world, or keep its cards close to the chest?

Mike McDerment from FreshBooks argues very convincingly for keeping it to yourself:

1. Commitments weigh you down (if you promise something and change your mind later)
2. Keep your competition guessing
3. Purchasing decisions get delayed (as people wait for the next great version)
4. Don't set expectations too high
5. You can bank on surprise and delight

I feel strongly that sharing your product road map to gain (and actually use) feedback from your clients is the best product strategy for any rapidly evolving software company.

We have always been fans of the "Agile" development methodology, and when we embarked on developing Wild Apricot back in early 2006, there was no doubt in our mind how to go about it. Instead of trying to design and develop a "perfect" product (which would probably take a year or more), we created a list of "user stories" (product features) and prioritized them according to what we could do in 3 months.

Wild Apricot aims to simplify life for people in associations and non-profits. It replaces five separate pieces of software with one, saving thousands of dollars and countless hours of data re-entry and reconciliation. It automates trivial administration tasks and lets people focus on their cause and passion.

Our first beta release was launched on June 30th, 2006. Feedback started to trickle in right away, and as we started to count accounts in the dozens and then hundreds and then thousands, it really poured in (and keeps pouring!).

Our initial road map was around 80 entries. Our current list is over 400 items, and the cycle never ends:

• Release an update
• Review accumulated feedback from clients, and add or change items in the work queue
• Reprioritize the new list, and pick top items we can fit into our next update
• Several weeks of intensive development, then testing
• Rinse and repeat

(We currently issue product updates every 6 to 7 weeks on average.)

One curious fact is that half of the items on our original list have not been completed, while we have released a couple of hundred other items that our clients requested from us.

This is the ultimate reason behind this strategy: our own team is smart, but the accumulated wisdom of our clients makes our product development much smarter than it would be if we did it on our own.

Let me circle back to Mike McDerment's points:

Yes, that's why you have to be very careful about what commitments you make, and about sticking to them. We made our share of mistakes: promising that "This feature would be released in a few months," and having clients ridicule us for still not having released it after 18 months.

Here is the process we follow:

We maintain a special discussion forum (a wish list): any client can register and post their ideas, or comment and vote on ideas provided by others. Our support team encourages and directs all clients to join the conversation there.

Our product management team constantly monitors this forum and participates and guides the discussion. After each product release, we conduct a thorough review of the wish list. One frequently voiced criticism of using client feedback to guide your research and development is that all of those ideas are too tactical and are not innovative; the fax machine would never have been invented in this fashion, by just collecting feedback for the good old postal service. My answer is that this is where our team adds the most value. Our job is not simply to take one suggestion after another, but instead to look for patterns and commonality and then generate innovative ideas and features that address the feedback, even though it may be in a totally different way than envisioned by the original client.

As an outcome of that, we regularly update the road map discussion forum, which contains the top 60 items that we consider to be pretty well defined and ready to be queued for detailed analysis and development. We do not allow clients to create new entries in this forum, but they can freely comment and rank threads that we have created.

This list of items forms the core of our work queue, which is reviewed and prioritized for each release. Again, the priority assigned to each item is based mainly on its ranking and comments by clients; but here we also have to weigh those rankings and comments against architectural considerations and the long-term vision for the system.

And of course we have to work a number of "unsexy" items into each release to maintain system and data security, ensure reliability, improve system speed, and deal with bugs.

Finally, the feedback loop closes with our weekly product update posts on our blog.

To address the other points Mike brought up:

For us, the competitive edge is in the execution, not the initial ideas, which are a dime a dozen. Plus, of course, customer service, however lame it might sound: this old-fashioned concept still goes a long way towards winning (and losing) clients.

Because we have this regular rhythm of new releases, people sign up at a steady pace, and the next update is always around the corner anyway. And if somebody needs a particular feature we do not have yet, I would rather have them wait and get more experience down the road than waste too much time shouting "SIGN UP NOW! SPECIAL OFFER ENDS TODAY!"

I say, set them high and deliver on your promises.

But you lose out on anticipation (also see Andy's point #2 below).

Let me close by quoting Andy Sernovitz, author of Word of Mouth Marketing (a must-read book, by the way, for any technology marketer: lots of practical advice). He also thinks that product road maps should be shared and makes these points:

1. Users will be thrilled to know how the product is going to improve.
2. You turn frustration into anticipation.
3. Your fans have something to talk about (more word of mouth!).

To close, I do not think there is a single strategy that works for every company and every team. Freshbooks is a very successful company, and we are looking to them in many respects. Our crowd-sourcing strategy works well for us and is a good fit for our team and product. The journey continues. Check out our release history.

What is your experience with crowdsourcing? Any thoughts on product road maps for software companies?

If you're a non-profit organization wanting to use the Web more effectively, try out the Wild Apricot suite of products and support a RWW sponsor.

Wild Apricot is a young technology company out of Toronto, Canada. We provide Software-as-as-Service for associations, clubs, and non-profit organizations. This is our story of an investment round that fell through due to economic conditions.

Originally financed by our founders, the company wanted to grow faster and in December 2007 decided to seek additional financing from outside investors. Things progressed quickly, and by February 2008 we shook hands on a deal with a new investor: a very entrepreneurial investment company out of UK. Closing was planned for April 2008.

Of course, things never go as planned (and this is one of the lessons many startups learn the painful way). First, due diligence protracted much longer than expected. This was partially due to the fact that our Canadian-based company has a subsidiary office in Moscow, Russia, where the bulk of software development work takes place. The investor was keen to ensure that the intellectual property was properly protected, and it required changes to the legal setup of the Russian subsidiary, new employment contracts for all employees, and a bunch of other changes.

Then the MBAs and lawyers got their hands on the deal, and it quickly deteriorated from a relatively simple original term sheet to a thick stack of very complicated contracts.

This was to be the first Canadian deal for the investment company, and the deal stalled for a while as the investor's lawyers struggled to reconcile the terms sheet with their standard templates and the wording of UK contractual law with the Canadian legal system and its way of doing things. (That's another lesson for start-ups: making a deal outside of your home base frequently takes much more time and energy.)

The shareholder agreement, articles of association, board by-laws, and all the other fun documents multiplied in versions like rabbits.

Everybody got exhausted, and the deal almost derailed a few times and was only saved thanks to the open dialog between our company and the majority shareholder of the investment company.

Dmitry Buterin, the Chief Apricot (aka President of Wild Apricot), got the final documents on the morning of October 9th, 2008. He was visiting the Moscow office at the time and went to work having the documents signed and faxed between Moscow and Toronto.

Alas, it was not to be. At 4:00 pm, he got a call from the investor. "We are not going to close the deal after all. Our shareholders are panicking and withdrawing their money. We cannot do any new deals now." The financial crisis finally hit home.

After seven months of due diligence, many thousands of dollars spent on accountants and lawyers, and countless hours invested by the management team, Wild Apricot had to write it all off.

It was even more disappointing because our company was delivering on its promises. Back in January 2008, we provided a detailed financial projection, and at the last check-in with the investor team we were proud to show the September and year-to-date numbers were right on the projections.

As the saying goes, in every crisis there is opportunity. So, the Wild Apricot team went searching hard for those opportunities.

The story is still being written because the crisis is still unfolding, but here is what we have achieved so far:

1. We asked nicely, and the investor agreed to reimburse part of Wild Apricot's legal expenses, even though there was no legal obligation on the investor's part.
2. We contacted local media right away to capitalize on all of the hoopla about the crisis and ended up on Canada's CBC television.
3. The founders put together another round of their own money, and while they had to scale back some growth ambitions, we feel comfortable about riding out the current storm and bridging this and the next investment round. (we knew that any deal had a risk of falling through, so we had backup financing arranged in advance, and it came in very handy.)

Wal-Mart has been reporting record growth as of late and McDonalds is stealing market share from Starbucks. So we think Wild Apricot might do even better in these tough times. Non-profits are hurting and have to trim their budgets (just search Google News).

To tell you more about our software: the basic premise is that for a simple, flat monthly fee of $25 to $200, Wild Apricot replaces up to seven separate pieces of software: the content management system for your website, a members database, a secure private website for members and the board, an event registration system, online payments processing, software to send bulk emails and newsletters, and online community facilities, such as blogs and discussion forums. Technical support and updates are free.

For a small association or club, this set-up saves thousands of dollars in software, countless hours of volunteer time usually wasted on copying and pasting and reconciling the data between a dozen Excel files, and paying through the nose for IT services.

Wild Apricot delivers a custom-built website project that would cost the equivalent of $20,000 or more (not to mention hefty ongoing maintenance and support fees).

October 2008 has been our best month in terms of absolute financial growth (meaning our monthly revenue has increased by the biggest amount ever). Percentage-wise, our revenue grew by 11.3% in a single month! And November so far is shaping up to be an even better month for us.

We we are very confident in our ability to keep growing by staying agile on our feet!

And here is the silver lining:

The US dollar is shooting up against most other currencies. Wild Apricot software is priced in US dollars, while its expenditures are largely in Canadian dollars and Russian rubles. This adds a healthy boost to its bottom line.

What are your war stories? How are you navigating these waters, and what new opportunities are opening up for other technology startups?

If you're curious to know more about this 'gritty startup', please click through to Wild Apricot's website and support a RWW sponsor!

That was a cute story, but now it's been just 5 months and today Peldi reports that he's just cleared $100,000 in sales of the four variations of his product. Talk about a simple tool coming along at just the right time! It's cool software, too.

Peldi says that while October was slower than September, and sales seemed to slow a bit when news of financial crisis was breaking out, so far November looks to be his biggest month yet.

He's got an active community of supporters cheering him on at his blog, too. He tracked the lead up to his launch, its aftermath and the product's early momentum right out in the open on his blog. He displays financial numbers throughout the blog. It's been a model of the paradigm of radical transparency and it's a whole lot of fun to watch.

What's next for Balsamiq? The tiny company has put together a remarkable board of advisors, Peldi has hired his wife Mariah to move from graphic design for the Balsamiq to a full time position, he's hired a few contractors and more projects are on the way soon.

We love stuff like this.

Fighting Free With Free

Clearly, this is also a program that is meant to create more goodwill towards Microsoft in the developer community. For a lot of tech startups, running Windows is often not even a consideration, as they are already building their software on top of free software anyway. As Om Malik points out, the idea of using Microsoft software often didn't even cross his mind when he started his business.

It is good to see that Microsoft is trying to gain some market here. However, it seems that Microsoft is trying to fight the free software movement by giving away its own programs, while a lot of developers prefer software that is not just free, but also open source.

TechFlash says that "whatever the ultimate role of the company, the circumstances surrounding its creation provide a behind-the-scenes glimpse into the new era of Gates' life." The company has a federal trademark as a think-tank and is classified under broad terms that include "scientific and technological services," "industrial analysis and research," and "design and development of computer hardware and software."

Sources told Bishop that the small office near Gates' home is filled with high-tech Microsoft paraphernalia, including one of the touch-screen tables used as a guest book.

We're excited to see what Gates does with the company and we'll be watching these top-notch reporters' coverage as it unfolds on their new site.

The first big question that jumps out is: where are the profitable VC funded web ventures?

We heard from lots of gritty entrepreneurs building business the old fashioned way, keeping costs low and funding from revenue. I have done that and know how hard it is to do, so here is a big cheer of recognition for all who are going that route. I hope we can profile some in the future.

When you make it to profitability via bootstrapping, you have a wonderful independence and freedom. You have to keep clients happy every day, but you really do get to call the shots. You don't have a money guy in the boardroom. This is why many people become entrepreneurs.

But what we want to focus on here are VC funded web 2.0 ventures that got to profitability as standalone ventures.

Surely Jigsaw is not the only one?!

We chose Jigsaw to kick off this series because they were VC funded and profitable. (Many people don't like Jigsaw, it seems like a tool for spammers, but that is another story and a bit out of date from what we can see). The point here is, what other Web 2.0 companies have been funded by VC and have reached profitability? Surely there must be some more? Did all the 2003/2004 era Series A funded ventures either exit or fail? Or are some on the cusp of profitability, with enough investor cash to get them there? Even with revenue forecasts that may need to be to brought down as a result of a slowing economy?

Please tell us about any VC funded web 2.0 ventures that are profitable today standalone. Here are the hurdles:

1. "VC Funded". A minimum $3m Series A from a recognized VC fund.
2. "Web 2.0 venture". We will be as loose as possible in this definition. In fact, any web venture funded after 2002 is OK as any venture after that date is likely to have some features of user generated content, social media, SaaS or other 2.0ish characteristics. "Web 2.0" is like the definition of art "I cannot define it, but I know it when I see it and I know what I like".
3. "Profitable". On this criteria we will be tight. We mean the Warren Buffet definition of profitable, which means "free cash flow", otherwise known as "owner earnings". It is really simple and you cannot fake it. You either get more cash from operations (cash from investors does NOT count) than you spend, or you don't. Accounting conventions like EBITDA don't count. More on this later.
4. "Today". That means this quarter. Even better last quarter. Or more than a few quarters.
5. "Standalone". Skype maybe profitable within EBay or YouTube within Google. That is a separate subject. We are looking for standalone ventures that have not exited. They made it to profitability on their own.

Why Free Cash Flow Is The Measure

EBITDA (Earnings Before Interest Taxation Depreciation and Amortization) is an accounting convention that is used a lot in the private equity business. "Private Equity" used to be known as "Leveraged Buyout". The L word is not in vogue today (Ed, using understatement as humor seldom works). Seriously, Private Equity deals have been based on their ability to raise debt at low cost. That game is over for a while.

EBITDA is supposed to be a measure of how much debt you can put on a company. It is usually applicable to well established businesses in traditional industries. Recently it has been used in relation to Facebook and other large web ventures. This is where it gets interesting for web entrepreneurs and their investors.

Is Facebook Profitable?

According to a report in BoomTown in January 2008, based on an interview with Mark Zuckerberg:

"Revenue for Facebook for 2007 will be $150 million, as has been widely reported. But for 2008, Zuckerberg projected revenue to be increased to $300 million to $350 million.

More interesting was the news that Facebook would spend $200 million next year on capital expenditures, which is a whole lot of servers.

By the way, more expenses, noted chatty Mark, those employee levels would rise to more than 1,000 in 2008 from 450 now.

And Zuckerberg also said the company's EBITDA-earnings before interest, taxes, depreciation and amortization and a number widely used by Wall Street as an indication of operating performance-would be $50 million in 2008.

That means the company would have a negative cash flow of about $150 million (EBITDA minus CapEx), rather than break even, as it does now."

Is Facebook profitable today, in the last quarter of 2008? Well it is almost certainly EBITDA positive, butthat is not the true measure. The answer is "maybe". If Facebook is hitting $300m to $350m this year (2008) and their operating costs have doubled from $50m to $100m (which is reasonable assumption as they said they would more than double employees from 450 to 1,000), they would have EBITDA of $200m to $250m. That sounds pretty good. But after $200m in Capex for servers, they are only breaking even on free cash flow at the bottom of their revenue forecast range. And, given the failure of Beacon and declining CPM rates on social networks, my guess (it is only a guess) is that Facebook revenues will be at the lower end of their forecast or even below.

But enough about Faceboom. The more generally interesting business issue highlighted by their story is that Capital Expenditure ("Capex") does matter for web ventures. In fact, it is a mission critical issue, with good software design at the heart of the issue.

Servers Are An Operating Expense For Web 2.0 Ventures

With user generated content, you don't pay people to create content that you use to generate advertising revenues. So your operating costs are R&D (developers), advertising sales and all those senior management overhead lumped into the General & Administrative (G&A) cost bucket. I don't really understand what 1,000 people do at Facebook, but that is another story.

As you scale, people costs should not scale. Servers do need to scale. That is where Facebook must be suffering from some sloppy early software design. That is fine, the initial win is all about user traction and a scalable design is secondary. But today it is a critical issue for Facebook. It is also a critical issue for any venture starting out today. Spending a few bucks early on to get a scalable architecture seems sensible. This is not rocket science, any competent software architect knows how to do this.

Should Servers Be Outsourced Or Leased?

Capex sounds old-fashioned. Why buy servers when you can lease or rent? If Facebook leased rather than bought servers, they could have positive free cash flow even at the lower end of their revenue forecast. The credit crisis will make leasing a bit tougher. Renting via Hardware As A Service (HaaS) is the ideal route for startups you benefit from the scale of the HaaS vendor. But it is unclear how the economics scale for the buyer? It is unclear whether Amazon AWS or any other HaaS is a serious option at Facebook's scale (or the scale of any VC funded venture that is nudging profitability).

Scale Or Profits - The New Choice?

It seems that ventures that can see a fairly quick way to profitability, simply ignore the VC route. The feeling seems to be mutual. VC look at a lot of the businesses that got to profitability and say "too small".

So, you have to choose either big and unprofitable or small and profitable? That does not make sense. If that is true, is this an issue with Web 2.0 models? Some VCs have seen this as a failure of IPO markets, meaning that public market investors won't trust unprofitable ventures promising they will be profitable in future. This "won't get fooled again" view is natural after the Web 1.0 bubble burst.

Trade sales for unprofitable ventures are unlikely to be the solution in the next few years. Not good trade sales at any rate (fire sales are technically trade sales, but they are not a good result). The buyer will be much less willing to fund losses because their investors will be less willing to fund losses for an uncertain period of time. If the venture is close to profitability it does not need to exit and nobody wants to exit in a down market unless they have to. VC have plenty of cash so this is not a financing issue, if the path to profitability is clear.

Maybe profitability for a lot of Web 2.0 ventures is really close? Maybe it just takes longer for Web 2.0 ventures to get to profitable - but that they will be fantastic cash cows when they get there?

Image: mlitty