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INNOVATION ECONOMY

What happens when a trend never touches down

Last summer supplied a learning experience for Jon Finegold, but it was not the sort he’d like to repeat. First, Finegold hunted for investors who might put more money into his five-year-old Wellesley start-up, Frame Media Inc. Then, he sought potential buyers. Finally, he filed papers to dissolve the company, laid off the last of his employees, sold the furniture and computers, and wrote thank-you notes to investors who had put about $6 million into Frame.

The story of Frame offers a look at what happens when entrepreneurs build a company atop a trend that never quite touches down. No matter how many things they do right, the company often fails. Meanwhile, the story of Where Inc., another local company built by Finegold and Alan Phillips, his Frame cofounder, demonstrates just the opposite: how picking a trend that is about to take off forgives many false starts.

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When Finegold and Phillips began working on Frame, newspapers were printing headlines like “Picture bright for digital photo frames.” Though just under 3 million frames were sold worldwide in 2006, according to Framingham research firm IDC, that number was expected to climb to 42 million by 2011 — and many of those frames would be able to connect to a home’s wireless network.

That link would let Finegold and Phillips turn the frames into a new information display, showing not just the owner’s photo collection, but also headlines, weather, sports scores — and the occasional advertisement. Techies talked about the digital photo frame as a “fourth screen” arriving in consumers’ homes, after the television, PC, and mobile phone.

Finegold and Phillips raised money from local investors, including Longworth Venture Partners of Waltham and Lexington-based CommonAngels. The company signed deals to provide its service to digital frame makers such as Kodak and Toshiba, and grew to employ about 20 people.

“When you would go to the Consumer Electronics Show, you saw that all of the device guys were releasing new picture frames and all of the chipmakers were manufacturing chips for them,” said Jim Savage, who led Longworth’s investment in the company. “It looked like a wave that was going to be good to catch.”

Frame was barely a year old when executives at Microsoft’s Cambridge office started sniffing around. The software giant was interested in digital frames as an emerging platform. After several meetings, Microsoft offered to acquire the company for about $10 million, according to a former Microsoft executive who was involved with the negotiations, but wasn’t authorized to speak about them. (A Microsoft spokesperson said the company had no comment.) Frame had only raised $2 million at that point, but the founders felt it could be worth far more if it continued as an independent company. So they turned down Microsoft and raised another $3 million.

Techies talked about a ‘fourth screen’ arriving in consumers’ homes, after the television, PC, and mobile phone.

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Heading toward the 2008 holiday season, the team was optimistic.

“We were expecting to see millions of frames sold using our platform,” Finegold said. “We were sweating that our servers would explode.” But the worsening economic crisis caused most digital frame makers to put on the brakes, cutting production and advertising. As a result, sales fell far short of everyone’s expectations.

Frame reduced expenses, waiting for the economy to rebound. Then, in January 2010, the iPad was introduced.

“That was really the knockout punch,” Finegold said. “Everyone in the frame category went into a complete Apple panic. They all needed to start making a tablet.”

The company tried other strategies, like supplying content to Internet-connected TV sets. They even created an app for the iPad.

“There was no lack of effort and creativity on the part of the team,” said Savage, the venture capitalist. “The installed base of frames and users just never materialized.”

The situation was very different at Where, the company Phillips cofounded just before Frame. (Finegold joined that company, originally known as uLocate, as head of business development.) The company posited that mobile carriers would soon start selling phones that knew their location and started designing applications that could take advantage of that.

Many of the first applications, like finding wayward teens or pets, weren’t blockbusters, but Where kept trying. As smartphones evolved, and consumers started using them for searches, Where became a guide to stores, restaurants, and services. The launch of app stores for the iPhone and Android devices helped the company reach millions of consumers.

Where also figured out how to deliver ads based on the user’s location, and assembled a network of other smartphone apps to place location-based ads. The company grew to about 100 employees, and achieved profitability.

By April 2011, Phillips had departed Frame and Finegold had taken over as chief executive, scrambling to save the company. That month, the PayPal division of eBay announced it was acquiring Where for a reported $135 million. Even though he joined Where in its first year, Finegold didn’t make any money from the acquisition. But for Phillips, it was a “significant” payday, he said — enough for a comfortable retirement or vacation home on Nantucket.

By July of last year, Finegold had to acknowledge that it was time to “start the wind-down” of Frame.

“I learned a lot,” Finegold said. “Hopefully, I won’t have to use that knowledge again.” He is now a vice president at Boston-based Swirl Networks, which has developed a shopping-related app for mobile phones.

Phillips spends his time and money investing in start-ups, many in the mobile sector.

“With Where, it was obvious to us that everyone’s phone would give them information about people, stores, and restaurants nearby,” Phillips said. “And with Frame, it was obvious that everyone would have a $99 frame in their house.”

Entrepreneurs often bet on a future that only they can see. Sometimes, they’re right. Today, what had been Where is known as PayPal Boston. It has 150 employees, and continues to hire.

Scott Kirsner can be reached at kirsner@pobox.com. Follow him on Twitter @ScottKirsner.
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