Two start-up companies were taking shape in Harvard Square in 2004. One was founded by Jeremy Allaire in the offices of venture capital firm General Catalyst Partners. The other was being built by a quartet of Harvard College students in their dorm rooms. One targeted the about-to-explode Internet video market, and the other targeted social networking, which seemed to have potential, but hadn’t seen a major success.
Mark Zuckerberg and Eduardo Saverin, two of the founders of TheFacebook, had their first meeting with a venture capitalist at The Charles Hotel. In General Catalyst’s office space next door, Allaire, a successful entrepreneur who’d sold his previous company for $360 million, was sketching plans for Vidmark, short for “video marketplace.’’ The following year, both start-ups attracted funding from Silicon Valley’s Accel Partners. And now both are heading for initial public offerings.
But the companies, now known as Facebook and Brightcove, evolved very differently, and they’ll have very different IPOs. In 2004, Facebook left Boston for California; Brightcove remained in Cambridge. The growth of the firms says a great deal about the kind of companies the soil supports in Boston, versus what germinates out West.
When Facebook’s founders pitched Battery Ventures, the Waltham investment firm, an earlier social network called Friendster was going down the tubes - and taking millions of dollars of Battery’s money with it. Here were Zuckerberg and Saverin pitching a social network targeted at a niche audience - college students - and insisting that Zuckerberg, then a sophomore, would run the company.
Battery decided to pass, and the Facebook crew decamped for the Bay Area, raising their first money from a California investor, Peter Thiel. Thiel had made much of his fortune as part of the early team at PayPal, the online payments company now owned by eBay. And interestingly, he also was watching an investment in Friendster swirl down the drain.
Thiel simply didn’t believe social networking was a passing fad, and he bet that Zuckerberg could get it right. He bought 7 percent of Facebook for $500,000.
Facebook pulled in talent from fast-growing consumer Internet companies like eBay, LinkedIn, PayPal, Google, and even Friendster. By designing an elegant and easy-to-use site, Facebook persuaded people to invite their friends to join and to regularly post updates, pictures, and videos. Very quickly, the site started acting like - and replacing? - water cooler conversations, alumni newsletters, vacation slideshows, high school reunions, and birthday cards.
Also, Facebook made it simple for businesses to buy ads, and for people developing other social applications (like games) to tie in. Along the way, as Zuckerberg spurned acquisition offers, he insisted that Facebook focus on expanding its user base and improving the service, not extracting maximum revenues from the business.
Meanwhile, at Brightcove, Allaire had a very big vision of how the “Internet of video,’’ as he called it, would develop. Viewing on PCs, mobile devices, and Net-connected TVs was about to explode, and individuals would have access to vast amounts of professional and amateur video. Some they would buy, rent, or subscribe to, and some would be free, supported by advertising.
Allaire’s last company, Allaire Corp., had created tools for building websites in the early years of the Web; now, he would do the same for Web video. In March 2005 Brightcove raised $5.5 million from General Catalyst and Accel. The second-time entrepreneur seemed a safe bet.
Out of the gate, Brightcove began building tools to help media companies publish, manage, and track viewership of videos they would publish on their own sites. That met an immediate need, according to former Brightcove employees with whom I spoke, and it was also something the company could charge for, bringing in early revenues.
By the time Brightcove got around to a site where consumers could upload their own content, watch advertising-supported videos, or buy video downloads, it was November 2006. A month prior, Google had bought YouTube. Apple and Amazon were also getting into the business of selling and renting digital video. Brightcove shut down its Brightcove.tv site after just two years.
After that, “they put all of their energy into creating publishing tools,’’ says Will Richmond, founder of Newton research firm Broadband Directions. “And they’ve become one of the leaders in that. It’s not as glamorous as YouTube or iTunes, but it’s an important service for publishers and media companies.’’ Richmond adds, however, that it’s a service coming under pricing pressure as more competitors enter the market.
Brightcove ended up producing a useful tool that it sells to about 3,800 video producers, according to the company’s IPO filing. Facebook became part of the daily lives of 845 million users. Brightcove focused first on building a solid piece of software that customers would pay for. Facebook aimed to create new kinds of digital relationships and only later started selling ads.
The numerical differences are stark. Brightcove’s 2011 revenue was $63 million, but the company had a net loss of $17 million. Brightcove has 300 employees, and is expected to have a stock market value of about $300 million when it goes public. (The New York Times Co., which owns this newspaper, is among Brightcove’s investors.) Allaire held on to 7 percent of the company after numerous funding rounds.
Zuckerberg owns 28 percent of Facebook, which made a $1 billion profit last year on $3.7 billion of revenue. The company has 3,000 employees and could be worth as much as $100 billion.
It is, of course, unfair to compare anything else with Facebook, which is one of those rocket ship start-ups that streak through the stratosphere once a decade. And Boston’s start-up scene has grown much more supportive since 2004. But the city’s love of the second-time entrepreneur, its bias toward solving business problems rather than chasing consumers, and its hunger for early revenue set these two companies on very different paths.Scott Kirsner can be reached at firstname.lastname@example.org. Follow him on Twitter @ScottKirsner.