March 27, 2009 / 5:04 PM / in 10 years

New technologies coming to Web start-ups' rescue

SAN FRANCISCO (Reuters) - Web entrepreneurs are increasingly embracing new technologies from “cloud” computing to new computer languages to try and slash costs as investors disappear because of the recession.

A person types in this file image. REUTERS/Sherwin Crasto

Investors and entrepreneurs say cloud computing, new — and free — programing languages, open-source software, and use of the Internet to distribute and publicize products have made starting a company relatively inexpensive and will allow startups to ride out the credit crunch and recession.

“What you’re talking about is life or death,” said Drew Clark, director of strategy for IBM’s venture capital group, speaking to Reuters on the sidelines of a business conference.

Venture capital investment dived 71 percent in January and is not expected to rebound for much of 2009.

“For the best of these companies, this could be the difference. If this had happened three years ago, they’d be gone,” Clark said, adding that IBM advocates open source.

One much talked-about innovation is cloud computing — using the Web to access programs and data at remote computer centers. That makes costly, long-term capital expenditure and storage unnecessary.

Persistent concerns about the security of data stored on remote servers and the dependability of external systems are offset by its economic advantages, entrepreneurs say.

“In 2005 we needed 10 to 20 times the money we need today. There was a certain amount that entrepreneurial intelligence couldn’t get around. Somehow you had to pay that piper,” said James Siminoff, chief executive of Grid.com and Simulscribe, which changes phone messages into text.

ONE HOUR AND $50

A decade ago, Michael Eisenberg, a general partner with Benchmark Capital in Israel, recalls he had to pay $10,000 each for Sun Microsystems servers.

“Today if I want to start up, it takes me one hour and $50 and I can turn on my capacity from Amazon Web Services from anywhere in the world,” Eisenberg said.

Some fledgling companies like Delve Networks are capitalizing on that trend, charging clients over $250 a month to host video on their websites. Delve itself owns little more than the personal computers used by its 20 employees.

Time is critical for start-ups because they burn cash every day. Hence the rise of streamlined programing languages such as this year’s hit, Ruby.

Ruby is a free, open-source language that Siminoff’s chief technology officer, Mark Dillon, said is so concise he can do in three lines of machine code what it took him 25 lines in Java, an older language. That speeds up program revisions.

Corporations have turned to offering free, open source software — a boon for cash-strapped start-ups. Sun Microsystems, IBM and others give away software to attract developers and gain contracts.

Finally, Internet marketing allows start-ups to publicize their wares at a fraction the cost of more traditional marketing or advertising campaigns.

“There are all these social conventions about companies that assume they are very big expensive things,” said Silicon Valley start-up guru Paul Graham, whose “Y Combinator” invests $10,000 to $20,000 into quick, ultra-cheap startups.

“It’s just not true anymore.”

Editing by Edwin Chan and Brian Moss

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