Explore synergies. It sounds like a New Age mantra, but it’s actually the mission of countless small tech companies wading in today’s choppy marketplace. For some L.A. tech companies, the synergies are all about latching onto the Fortune 500.
In the last few weeks, Xdrive Technologies Inc., Launch Media Inc. and NeTune Communications were among an increasing number of small tech companies that announced alliances with industry leaders like Microsoft Corp. and IBM Corp.
Many of the recent “elephant-meets-ant” partnerships are merely “press release alliances,” said Larraine Segil, an L.A.-based business consultant and author of “Fast Alliances” and “Intelligent Business Alliances.”
In a press release alliance, companies claim they are allying simply to let competitors know that they are on the move in a particular sector.
In fact, Segil said, about 60 percent of all alliances are doomed to fail because of unexpected culture clashes.
On the brighter side, “alliances are also about big companies taking advantage of risky innovations that others have launched,” Segil said.
In order for them to work, the larger player must commit a “fast-track team of people who can think like small companies, be entrepreneurial and be a nimble dancer with an ant,” she said.
Among the more interesting pairings announced late last month was the one between Santa Monica-based Xdrive and Microsoft. Xdrive, a provider of Internet storage infrastructure, said it would be a third-party data storage provider included in Microsoft’s new Windows operating system, Windows XP.
Xdrive’s service will be packaged with XP’s Web Publishing Wizard and will let users upload, download, access and share large files using a PC or handheld device.
Xdrive and Microsoft execs have been holding talks for the past six months, according to Xdrive executive vice president Karl Klessig.
As part of the deal, Xdrive will eventually garner revenues from users who sign up for Xdrive’s services through the XP operating system.
“It’s a strategically important deal more than a revenue deal,” Klessig said. “It validates that we’re a premier player in this space.”
The two companies have been working together to ensure that Xdrive’s offerings will be compatible with Microsoft’s XP system to be released in June and with Microsoft’s ambitious new array of Internet services, dubbed HailStorm, which Chairman Bill Gates discussed publicly for the first time on March 21.
HailStorm, which Gates has said will be even more important than Microsoft’s first foray into the Internet in 1995, will include a vast database to help consumers manage and share personal information. That’s good news for Xdrive, currently the only storage vendor that Microsoft has tapped for XP.
Working with companies like Microsoft is part of Xdrive’s new focus on large enterprises and away from individual consumers. As part of that shift, the company has laid off 41 workers about 20 percent of its workforce since March. Xdrive said it will also be hiring to fill new positions created by the change.
In another deal, NeTune, a Culver City-based startup that provides broadband services to Hollywood, announced late last month that it has hooked up with IBM.
Big Blue took an undisclosed equity stake in NeTune and will jointly offer an array of digital solutions to the entertainment industry, execs from both companies said.
The alliance includes a five-year outsourcing agreement in which NeTune will pay IBM about $112 million for a wide range of Blue technology. IBM will also lend marketing support to NeTune.
“We’ll be going out to market together to help NeTune sell their technology,” said IBM spokesman Jeffrey Gluck.
The partnership revolves around NeTune’s Showrunner, a service that uses broadband technology to help studios and networks move massive amounts of data, like dailies and video messages, from remote locations to the studios.
NeTune wasn’t exactly unallied before it teamed with IBM. The company has ongoing partnerships with Hughes Electronics Corp. and Creative Artists Agency.
But the deal with IBM is significant because of Big Blue’s muscle in the marketplace.
“Our relationship with NeTune is going to be tight for at least the next five years,” said Gluck, who added that R & D; for the entertainment industry is one of IBM’s key focus areas.
“Digital is just starting to take hold of the production side in the entertainment industry, and the pace of change is going to accelerate,” he said.
Launch Media has also hooked up with a Fortune 500 company. San Diego-based Qualcomm Inc., which ranked 500th on Fortune magazine’s list with $3.2 billion in sales last year, will use Launch’s streaming music service on its new BREW (Binary Runtime Environment for Wireless) platform.
Launch is counting on a boost in advertising revenues from upcoming wireless services. According to CEO David Goldberg, revenues from various wireless applications could amount to as much as half of the company’s overall revenues.
Launch could use the injection. Like many Internet companies, Launch is still in the red and saw its income from advertising drop in the fourth quarter.
“We think there’s a huge opportunity to replicate what people can do on their PCs and to deliver that to portables,” Goldberg said. “That is the way we will replace radio for consumers.”
While no money was exchanged as part of the deal, both Qualcomm and Launch will garner revenues as telecommunications carriers pick up the BREW platform and its applications.
Work, Work, Work
Forget about allying, Santa Monica-based business portal Business.com Inc. swooped in like a vulture when rival Work.com announced it was shutting its doors. Business.com bought the URL for a rumored $500,000 last month and began redirecting Work.com visitors to Business.com last week, a move that caused an immediate spike in traffic.
“Frankly, we’re thrilled with the results so far,” said Business.com editor in chief Peter Gumbel. “Unique users and our page-views are up over 50 percent. It looks like we have acquired high-quality traffic.”
Business.com paid about $7 million less for Work.com than its incubator, eCompanies, paid for the Business.com URL last summer.
Gumbel, who would not confirm the purchase price, said there was no formal bidding process for the URL. The deal was based mostly on the rapport that Business.com execs developed with Work.com CEO Don Hutchinson, who was eager to send his site’s traffic to Business.com, Gumbel said.
Hutchinson said in statement that “the combined assets of Work.com and Business.com provide the market with a dominant business information leader.”
Gumbel said that the sites’ combined traffic equals about 1.8 million unique users per month.
Staff reporter Hans Ibold can be reached by phone at (323) 549-5225 ext. 230 or at [email protected].
