10 Tech Start-Ups Whose Sizzle Fizzled

BOSTON ( MainStreet) -- For every Facebook, there is a MySpace; for every Google ( GOOG), there is an Ask Jeeves. Fate is fickle in the world of tech start-ups, and it can be hard to predict which companies will have the staying power to shape global behaviors and which will end up in the digital scrapheap.

Scott Lipsky has lived "both sides of the coin," as entrepreneur and investor. An early member of Amazon's ( AMZN) executive team, he was co-founder of the advertising network aQuantive, which sold to Microsoft ( MSFT) in 2007 for $6 billion. His latest venture, PhotoRocket, is a Seattle-based start-up that simplifies sharing photos with contacts and social networks to a mere right click of the mouse.
By September 2010, Cuil was no more than a footnote in the history of the Internet, with its servers shut down for good. Its fatal flaw? It sucked.

In preparation for a talk he gives to college students, Lipsky says he identified 721 reasons why start-ups fail.

Among the biggest mistakes: having the wrong team in place, lacking focus, not being agile, poor market timing, product management issues, poor customer service and weak execution.

"Having smart people is one thing," he says, but that team must be pushed to constantly raise the bar. In many cases, there is "too much emphasis on pedigree and not enough on ability."

"No matter what you have as a business, investors invest in people, not companies," he says. "The team is absolutely the No. 1 thing that any investor worth their salt is looking at, above and beyond the idea."

Lipsky says that investors want to see not only vision and passion, but shrewd focus.

"One of my favorite sayings is, 'Start-ups don't starve, they drown,'" he says. "With the right team and the right product, they will not starve from lack of funds. But take that same team and same product and without focus it will drown from going in too many directions and not executing the way it should. It is all about execution with a start-up."

Keeping to a step-by-step focus can be a challenge, especially when founders get wrapped up in the big picture.

"It can be very difficult to do that when you are out there raising money with the vision and the big excitement and a long-term view of things," Lipsky says. "It's a managerial issue. Building a culture of focus is just as important as a culture of hard work, working long hours and hiring smart people."

He admits that it sounds counterintuitive, but start-ups also need to be agile and willing to commit to strategic shifts in either product or service.

A killer mistake is when entrepreneurs don't focus sufficiently on customers and their experience with a product. In many cases, a launch can be rushed.

"Many entrepreneurs get excited about being first to market," Lipsky says. "It's very exciting because you are inventing something and thinking that because you are first to market you are going to succeed. The problem is that you are in the difficult position of educating the market about what the product is and why the market needs the product. You are also making product and service mistakes for the first time. It might be ideal to be second or third to the market. After the market is validated, then you can learn from the mistakes that have already been made."

Buzz may help draw in investors, but hype alone doesn't guarantee a company's success.

Pownce was a social media/microblogging site launched in 2007. The involvement of co-founder Kevin Rose (an entrepreneur associated with Digg, Revision3 and TechTV) gave the service instant, favorable media coverage that heralded it as the hottest of hot Silicon Valley start-ups. Advance sign-up invites were snatched up on eBay ( EBAY).

Once all that frenzy subsided, the verdict was a resounding "meh." The site never lived up to the hype and couldn't capture, or retain, the dedicated user base it needed for survival.

By Dec. 1, 2008, less than a year after the public was allowed to log on, it was announced that Pownce was joining forces with blogging software company Six Apart. Despite promises of a new, improved site in 2009, Pownce never returned.

There were also high expectations for Quora, an online community where members shared their expertise via questions and answers. Founded in 2010 by former Facebook executives, the company was valued at roughly $1 billion lat year.

Quora is alive and well, though certainly not uttered in the same breath as Facebook or Twitter these days. In fact, even Quora has fielded the question, "Is Quora overhyped?"

For a very brief time, Chatroulette, created by a 17-year-old from Moscow, looked like it was going to be the next big thing in social media. The service -- which pairs Web-chatting users from all over the world anonymously -- failed to make it big with either investors or advertisers. As anyone who has ever visited the site can attest, adding anonymity to webcams equals nonstop genital exposure. Several comprehensive efforts to clean up the site have been tried, and failed, since the 2009 launch.

The following is a look at some other heavily hyped tech start-ups that never lived up to expectations and reside in the "Where are they Now" file:

Second Life
It wasn't all that long ago that Second Life -- a virtual, online world populated by user-created avatars -- was being hyped as a revolutionary concept in terms of how humans, media and businesses interact.

And it was ... until it wasn't.

Developed by Linden Lab, Second Life launched in 2003.It was a massively creative undertaking that even had its own economy and currency.

Virtual goods were openly bought, sold and traded. Everything from real estate to sexual favors could be bought with "Linden Bucks." Amazon, American Apparel ( APP), Sears ( SHLD), Dell ( DELL)and Reebok were among the real world retailers that opened virtual stores.

Politicians, including presidential candidate John Edwards, set up campaign headquarters there. Former Speaker of the House (and current GOP candidate) Newt Gingrich delivered a speech there.

Wired magazine and CNN built their own media enclave "islands." The news service Reuters created a Second Life bureau. PBS sponsored classical music concerts. Colleges set up virtual campuses and churches brought religion to cyberspace.

Second Life is still around, with an estimated 1 million monthly visitors, but it never quite lived up to its media-fueled expectations and, today, rarely warrants a media mention.

What went wrong? Simply put, the biggest threat facing any online service: People became bored with it. Second Life proved as mundane as everyday life. The virtual world also proved to share some real-world issues as in 2008, amid the global financial crisis, Second Life had a meltdown of its own and was forced to ban nearly all its virtual banks.

Before the ban, the MIT-affiliated magazine Technology Review reported that one virtual-bank meltdown could have cost virtual "residents" nearly $700,000 in real money losses.

In recent years, the media, once quick to hype Second Life, was equally quick to tear it down.

After Reuters closed its bureau in 2008, its displaced bureau chief, Eric Krangel, shared his thoughts on why the buzz died with Business Insider:

"It's hard to say what, if anything, Linden Lab can do to make Second Life appeal to a general audience. The very things that most appeal to Second Life's hardcore enthusiasts are either boring or creepy for most people: Spending hundreds of hours of effort to make insignificant amounts of money selling virtual clothes, experimenting with changing your gender or species, getting into random conversations with strangers from around the world, or having pseudo-nonymous sex (and let's not kid ourselves, sex is a huge draw into Second Life). As part of walking my 'beat,' I'd get invited by sources to virtual nightclubs, where I'd right-click the dance floor to send my avatar gyrating as I sat at home at my computer. It was about as fun as watching paint dry."

In 2009, an upstart tech company, Cuil, went after one of the biggest fish in the tech ocean, Google.

Cuil CEO Tom Costello recruited a team that included former Google employees and, $33 million in VC funding in hand, claimed to have indexed more pages than any other search engine (120 billion pages at the time) and could serve up that data faster than its competitors.

By September 2010, Cuil (which was pronounced "cool") was no more than a footnote in the history of the Internet, with its servers shut down for good.

Its fatal flaw? To put it bluntly: It sucked.

In the days leading up to its launch, the company kept tech writers and reviewers in the dark, offering no early peeks or beta tests. When the world finally did get a crack at Cuil, they found a service that fell far short of its own hype. Search results were erratic and often mismatches.

An attempt to salvage the technology led to the launch of Cpedia, billed as the world's first "automated encyclopedia." A cross between a search engine and Wikipedia, it too earned the scorn of users and blistering reviews, many of which focused on the indecipherable gibberish its mish-mash of combined results served up.

In 2009, two location-sharing services, Gowalla and Foursquare, went to battle. Today, only one remains.

Gowalla had a lot going for it, including a novel concept, a focus on leveraging check-ins for event recommendation and an attractive interface. What it didn't have is as many users as Foursquare, despite launching two years earlier. Just as Facebook once struck a chord with users MySpace didn't, Gowalla found itself an also-ran to Foursquare.

In December, it was announced Gowalla was sold to Facebook, a deal that culminated this month with the service going offline (although an online message suggests that users may eventually get a new interface for downloading their "passport" data).

The terms of that deal have yet to be made public, although published reports have claimed that the deal does not include user data.

Gowalla isn't the only location-based service acquired recently.

Loopt, another pioneer in the field, was bought for $43.4 million in cash this month by Green Dot ( GDOT), a leading provider of prepaid Mastercard ( MA) and Visa ( V) cards. The deal was touted as strengthening Green Dot's push into the realm of mobile payments.

The implementation of a standardized Internet currency has long been a frustrating effort for companies.

Facebook Credits, a monetary unit pushed by the social media giant, have been slow to gain popular acceptance, angered many game developers and led some to accuse the system as violating antitrust laws.

Traveling back in time to the era of the dot-com bubble, Flooz was among the start-ups making a play as an online-only currency and alternative to credit card transactions. Hiring Whoopi Goldberg as a spokeswoman and pocketing an estimated $50 million-plus in investor-backed funding weren't enough to keep Flooz from fizzling by 2001. Its demise was hastened by an FBI investigation into a Russian crime syndicate that was using stolen Flooz data for an international money laundering scheme.

A Flooz competitor, Beenz, despite $80 million in funding ( Oracle's ( ORCL) Larry Ellison was among the investors) was also a failure.

An intriguing alternative once seen as possibly succeeding where Beenz and Flooz failed is Bitcoin, a "peer-to-peer digital currency" platform first proposed in 2008.

Although it too failed to gain wide acceptance, in large part due to hacking exploits that devalued the worth of its lucre, Bitcoin has seen new awareness through an unlikely source: presidential candidate Ron Paul. Paul champions an end to "fiat currency" and a return to a gold-backed monetary standard in the United States. Bitcoin, which uses a computer algorithm to steady its "mining," is increasingly viewed as a worthy alternative by those who object to a politically manipulated money supply.

It has also gained traction as an underground currency, used for illegal purchases in the secretive "dark net" of Web sites that lie off the grid, accessible only through anonymizing software such as Tor.

A recent article in Wired touted Bitcoin's return from the dead with a headline that asked, "Should Western Union ( WU) Be Afraid?"

A wiki page maintained by Bitcoin supporters addresses some of the common complaints that have dogged the exchange (proponents support it for online and real world transactions).

"Bitcoins are illegal because they're not legal tender," is cited as one myth that earns a response: "Chickens aren't legal tender either, but bartering with chickens is not illegal."

"There are a number of currencies in existence that are not official government-backed currencies," it adds. "A currency is, after all, nothing more than a convenient unit of account."

Other criticisms dismissed by proponents are that "Bitcoin is a form of domestic terrorism because it only harms the economic stability of the USA and its currency," and that it "will only enable tax evaders, which will lead to the eventual downfall of civilization."

Born to be sold.

If a tech start-up could get a tattoo, that's what the ink might say.

Some big buzz tech start-ups don't fade away to the "where are they now" file because they are failures, per se, but because they get absorbed into a larger entity.

That was the case for (tiny), or Tiny Pictures, a company that specialized in photo sharing.

Its best-known service, Radar, was a Web site and application that unlike its competitor, Flickr, was specially designed to let mobile phone and smartphone users share content. That sharing could be restricted to only certain people, and comments could be added.

Radar.net launched in 2006, a year after (tiny) was founded. At peak, it had more than 750,000 registered users, but never managed to maintain, much less add to, that core base.

Despite having raised more than $11 million in capital investment, it sold to Shutterfly in 2010 for just $1.3 million in cash and $1.3 million in restricted stock to employees.

Facebook co-founder Chris Hughes has been no stranger to political and social activism.

During the 2008 presidential campaign, he oversaw then-candidate Barack Obama's social media strategy, notably through the Web site My.BarackObama.com. That campaign's success, notably in its rallying of young and first-time voters, earned Huges considerable accolades. An April 2009 cover story in Fast Company touted him as, "The Kid Who Made Obama President," and credited him as having "changed politics and marketing forever."

In November 2010, Hughes launched Jumo, a social network service and Web site that sought to connect activists with each other and the nonprofits dedicated to their cause -- "from human trafficking to childhood obesity," as a company blog post summed it up.

Jumo wasn't one-of-a-kind. Other sites had already tackled a similar concept, notably Change.org, volunteermatch.org and idealist.org. The Web site Charity Navigator is a popular landing spot for those looking to evaluate nonprofits.

When all was said and done, Jumo didn't quite offer anything revolutionary and it never did become a household name, even among activists. Multiple redesigns were symptomatic of its failure to cultivate a reputation as a go-to resource.

It would be unfair to paint Jumo as a failure, however. It merely faded into the background when it merged with the magazine and Web site Good in August.

"I'm thrilled to share with you the exciting news that Jumo is combining forces with Good to create a powerful online content and social engagement platform," an online announcement from Hughes said. "This is an enormous opportunity for our talented teams to build a single community of like-minded people and mission-driven organizations."

"When we started Jumo over a year and half ago, we had a simple mission: to use technology to help everyday people have a meaningful impact on the world. We've long believed that the best way to facilitate positive change is to connect individuals to outstanding organizations working on the ground in our communities and around the world," the message added. "Today, we are one step closer to fulfilling this goal."

Jumo, which had raised more than $3.5 million dollars in start-up funding, was acquired for slightly more than $62,000.

Hughes hasn't retreated from the political world. This month, it was announced that he had bought a majority stake in The New Republic, a left-leaning magazine, and will take over as publisher and editor-in-chief.

Clear (Verified Identity Pass)
Some start-ups are resurrected from the dead after a first bout with failure.

The company Verified Identity Pass launched its Clear service as a pre-screening effort that could unclog the tie-ups created by tightened airport security after 9/11.

An announcement sent to Clear's 250,000 customers in June 2009 announced that, due to a financing snag, it would cease operations. Founder Steven Brill (who also founded CourtTV, the predecessor to truth) had been pushed out of the company by investors the year before.

Beyond money woes, other issues contributed to the demise. The Clear service was recognized at only 22 of roughly 600 national airports, for example, and never had the full support of the TSA.

Now, under the ownership of Alclear, Clear is back. According to a press release this month: "Travelers through Orlando International Airport and Denver International Airport have used Clear ... more than half a million times" as of March 12.

It adds that Clear expects to launch services at San Francisco International Airport in the second quarter.

Billed as "the first and only biometric-based secure identification program for airport passenger security," Clear membership now costs $179 for one year with unlimited use.

-- Written by Joe Mont in Boston.

>To contact the writer of this article, click here: Joe Mont.

>To follow the writer on Twitter, go to http://twitter.com/josephmont.

>To submit a news tip, email: tips@thestreet.com.


Follow TheStreet on Twitter and become a fan on Facebook.

If you liked this article you might like

The (James) Bond Market

The (James) Bond Market

Junk Mail Folders Can't Contain Spam Profits

Junk Mail Folders Can't Contain Spam Profits

Will Summer Concerts Sing the Blues?

Will Summer Concerts Sing the Blues?

'As Seen On TV' Rings the Till For Retailers

'As Seen On TV' Rings the Till For Retailers

Praise and Profit: How Religion Pays Off

Praise and Profit: How Religion Pays Off