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 Technology News | July 2007 
Rise of the Microgiants
 Scott Duke Harris - Mercury News
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| | Lance Tokuda is co-founder of RockYou, a San Mateo company that subcontracts some of its "widget" projects to engineers in China, India, Japan, Romania and Canada. (Gary Reyes/Mercury News) |
Tucked inconspicuously into an older office building in downtown San Mateo is a young, small company that churns out online applications - slide shows, animations, glittery text and more - that anybody can use to jazz up and decorate their online alter egos in blogs or profiles in MySpace or Facebook.
This is RockYou, a 14-employee company that's making a name around the world, not only for its applications - or "widgets" as the online industry calls them - but also for the way the company is outsourcing its work over the Internet.
To increase production and contain costs, RockYou subcontracts some of its widget projects to engineers in China, India, Japan, Romania and Canada.
RockYou is emblematic of what Nicolas El Baze, a French venture capitalist who sits on RockYou's board, calls "the rise of the micro-multinationals." Not unlike multinational giants such as Cisco Systems or Intel, a "micro-multinational" is a small company that acts big by skillfully using the Internet and other technologies. In the ultra-connected 21st century, these kinds of start-ups are now quickly able to form distant partnerships online to enhance production and reach global markets.
Founders Lance Tokuda and Jia Shen say some of the outsourced work involves people they knew from previous jobs in Silicon Valley who have since returned to their respective homelands.
"It's what you can do. It doesn't matter where you are," Shen said.
RockYou's Japanese developers, for example, "are very creative, excellent Flash designers." And for a complex technical problem, RockYou might turn to the Romanians.
"They're an excellent technical team. Just very smart guys. But I wouldn't ask them to draw me anything," Shen said with a smile.
RockYou also has forged a strategic partnership with Gizmoz, an Israeli-based avatar maker that on May 31 splashed into the marketplace with an animation contest sponsored by MTV and Taco Bell. Gizmoz's primary gizmo allows users to convert a photographic portrait online into a 3-D animation.
The widget makers chiefly earn revenue through advertising on their own Web sites, while exploring other ways to monetize the fast-evolving online market, perhaps through partnerships with big consumer brands like Nike or Coca-Cola.
This is the new reality of the Web 2.0 world, or second generation of Web services that allows people to exchange and share information online. It enables entrepreneurs to tap the global workforce in a way that could only be imagined in the day when software tools were comparatively crude and expensive, and broadband was rare.
During the Web's childhood, low-cost Internet international phone services like Skype were but a notion. While most early Web start-ups burned through capital to build brand recognition, the Web-based "viral marketing" can have stupendous results at minimal cost.
"Now there are a lot of tools that allow you to interact with people in other times zones pretty efficiently," said Susan Choe, founder of Outspark, a 50-employee start-up in San Francisco that links game developers across the globe to the Western market. "We use Skype all the time," she added. "Our phone bill is virtually zero, even though we are calling all over all the time."
San Francisco-based Slide, a company that also makes Web site widgets for teenagers and young adults, takes a different tack to globalization. About 20 percent of its 50 employees are foreign nationals, including three engineers from Guadalajara, Mexico.
Having climbed to the No. 31 ranking in Web site traffic, according to the research firm Quantcast, Slide is widely considered the leading widget maker. Founder and chief Max Levchin, best known as co-founder of PayPal, was delighted when he learned that North American Free Trade Agreement provisions would make it relatively easy for Sergio Villareal, one of Mexico's top tech bloggers, to legally relocate to San Francisco to work for Slide. Villareal has since helped bring in two friends.
Levchin, who immigrated from Ukraine to Chicago at age 16, said he has "an oscillating flirtation" with outsourcing. In 2006, Levchin took his first trip to his homeland, in part to scout outsourcing possibilities. On other journeys, he has scouted prospects in Russia and China. But in the end, he said, he prefers his team operating under one roof.
"No matter how much you believe in video conferencing and instant messaging," he said, "it's easier to lean over someone's shoulder and say, `Hey, what are you doing?' "
But Slide pursues global markets in other ways; its Web site offers a choice of seven languages.
A key to both Slide's and RockYou's marketing strategy - they liken themselves to hip, free stores in a shopping mall that allow teenagers to personalize their own sense of style - is to build a clientele within the various social networks that serve the world. And some of those social network companies happen to be headquartered in greater Silicon Valley.
Consider a company called Bebo. Only 20 months old, Bebo claims 33 million users while becoming the top social-networking site in the United Kingdom, Ireland, Australia and New Zealand. Its headquarters are in San Francisco.
Bebo's husband-and-wife founders, Michael and Xochi Birch, are, respectively, English and American. They met as computer science students in London but didn't launch Bebo until they had relocated to the Bay Area.
Some social networks have achieved regional dominance largely by happenstance, due to the nature of "viral marketing" - the often potent way information spreads online that can make some Web products especially popular, say industry observers. That's why the much-hyped San Francisco-based Friendster, now considered a flop in the United States, has a substantial audience in the Philippines and is popular elsewhere in Southeast Asia, industry observers say. And Orkut, a social network launched by Google from its Mountain View headquarters, is big in Brazil.
RockYou founders Tokuda and Shen, by contrast, are entrepreneurial upstarts who struck out on their own after working together at two previous companies. They launched the first widget, a slide show application, on Nov. 14, 2005, and promoted the free service by posting six messages over two weeks in a MySpace forum. "We got 6 million users out of that," Tokuda said. The company now claims 18 million users.
The founders say 70 percent of their customer base is female, and they may alter their Web profiles day by day to show off their personality and style. And industry tracker ComScore found that about 24 percent of Internet users had seen a RockYou widget in the past year.
"Not bad for a 14-person company," said Tokuda.
Contact Scott Duke Harris at sdharris@mercurynews.com or (408) 920-2704. |
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