Bain Capital must be psychic. Apparently they’ve looked into the future and seen that TokBox, a San Francisco-based startup, will either grow into a large company or find a buyer for what is essentially a Flash-based, in-browser video chat service that’s gotten marginal traction. Sure, the company has a new desktop client that allows you to video chat with anyone, but then so does my iChat.

Bain Capital has led a $10 million investment in TokBox. The move comes less than a month after the company named a new CEO, Nick Triantos, who has worked for many tech firms, but has never before held that title.

The company launched in October 2007 and has thus far raised a total of $14 million from Bain and early investors Sequoia Capital. Scott Friend, Venture Partner at Bain Capital Ventures, in a press release announcing the Series B round, said:

“The company is executing well…We are excited to be investing with our partners at Seqouia in a company we believe has the potential to be the next ‘big thing’ in web communication.”

Just to put his words into context, TokBox recently fired its founder and CEO, Serge Faguet. And according to Compete.com, they had about 179,000 visitors in the month of July, though they did sign a deal with Meebo that stands to get them some traction. (For a list of their competitors, check out NewTeeVee’s round-up of video chat applications.)

From the way I understand it, TokBox is using the built-in video capture capabilities in Flash player combined with the Flash media server to offer in-browser video conferencing. When the company launched, I pointed out that it was an “interesting idea, but more of a feature than a platform for a standalone company or model for a viable, long-term business. If (and that’s a big if) TokBox is going to work, it will need to be rapidly adopted by the marketplace.” Rapid adoption hasn’t quite happened, however, and I wonder if it ever will.

But again, the guys at Bain must be able to look into the future better than us skeptics.

Update: I finally got home this morning and am now catching up on comments and emails. Lots of interesting comments about this post. Robert Scoble pointed to comments by Paul Buchheit on FriendFeed, where he has done some verbal gymnastics defending what Allen had reported and disagreeing with what I wrote. Of course, there are many who disagree with me, though it’s hard to argue with the fact that the word friends doesn’t mean what it used to mean. Thanks Russ, for pointing that out, even if it seemed obvious.  

Original post follows: I’m sitting in the Philadelphia airport, wondering when my connection to San Francisco is going to actually take off. The good news is that my EVDO modem is working, my Macbook is plugged in and I watched the Red Sox-Yankees rubber match on ESPN.

Whew…that was a nail biter. The Red Sox are a really good team, despite the injuries. We are a terrible team because of the injuries. The upside to the connection: I got to see this fantastic video by Allen Stern over on Center Networks. The video exposes the flaw in FriendFeed, a life-streaming aggregation startup, and the buzz around it.

Essentially the company is well-known because it was started by some ex-Google guys, including Paul Buchheit, who made his name working on Gmail. And it’s been attracting people who are dissatisfied with Twitter and its constant outages.

FriendFeed’s profile has improved in the last few days because some of the more well-known Internet names have started writing about the company, noting how quickly they are getting more people “following” them on FriendFeed. Such articles beget more such followers, making it all a self-fulfilling prophecy, even if it takes FriendFeed away from its founding principles.

However as Stern points out, these very famous Internet people are being offered as “default” on new Internet accounts. (Of the many, Robert Scoble is an extreme user of FriendFeed, has been for a while, and from the looks of it, a totally true believer.)

Anyway by putting some of my good friends on the default list, the company is basically ensuring positive attention to its service — the fact that it takes the “friend” out of FriendFeed, be damned! I mean, just because you’re following Loic Le Meur, that doesn’t mean he automatically becomes your friend. Allen puts it well when he says, “Defaults don’t just mean more followers, they mean more traffic to the supporting content sites.”

When I asked FriendFeed co-founder Paul Buchheit about this, he said, “you are correct however that we should tweak the algorithm to increase diversity when browsing popular feeds such as Scoble’s — FriendFeed has grown by a few orders of magnitude since the algorithm was originally created and so it probably requires some updating.” When I spoke with Paul, I hadn’t yet realized that there was this also default nine-person set.

From what I understood, FriendFeed was about aggregating and sharing specific kinds of information with your friends and talking about it. I thought it was me who would invite my friends and get them to share stuff with me. Or someone else would invite me, and we would share. Where the hell did defaults and “discovering” others become part of the whole service?

Robert Scoble in his comment on FriendFeed points out:

The real problem is these services are really lame if you have no friends. This was an attempt to fix that problem. I agree though that FF should only recommend participants on the first few screens. If you aren’t participating why would FF want to feature you?

Liz Gannes in her post about the company pointed out that:

The funny thing is, in some ways FriendFeed makes the web less social — stripping away the community features that make specific sites special. But it also makes the web more social, by emphasizing your real-world connections rather than relationships built around common interests or objects, and bridging together the little online islands where we express ourselves.

In the words of Iminta founder Aaron Newton, these life-streaming services are the watercoolers of the 21st century. In the past you’d discuss “Seinfeld” episodes around the office; now you can do that online at Iminta or FriendFeed. But try doing that with thousands of followers — there isn’t much of a conversation left. What you have is a call-in radio talk show.

Not that there’s anything wrong with that — just that you can’t call yourself a FriendFeed when you take the focus away from friends. I know a lot of people, and at best they have about 100-150 relationships, tops — including casual ones at work or with the neighborhood barista.

FriendFeed isn’t the only startup that seems to have moved away from the whole notion of friends and the personal web. Twitter is another example: What started out a simple alert service for a group of friends became a personal soapbox where the noise started to drown out the signal.

FriendFeed needs to learn from Twitter. Of course, maybe all they want to do is attract attention and sell the company to Google. Building a business — that’s so old-fashioned.

Time to catch that flight. Hopefully I will be home by 5 am!

In 1999, half a dozen venture capitalists turned me down for financing because the business plan for my company, BlueTie, put me in direct competition with Microsoft. There simply was no point, they said; between its desktop monopoly, ranks of talent and outsized bank account, Microsoft was a guaranteed startup-killer. Instead, they advised us to “pick a market Microsoft doesn’t care about.”

Fortunately my team and I did not listen, and went ahead with our plan. BlueTie is an SaaS company with two revenue streams: We host customized email and collaboration software for enterprises; we also have an ad platform that pushes third-party services and promotions into your email, calendar, or social networking application, so you can make dinner reservations or book travel without interrupting your workflow (see the screenshot below).

BlueTie eventually did get funded. Today we have 3 million users and 250,000 business clients, and we’ll exit 2008 with a revenue run rate of more than $20 million. We’re undoubtedly benefiting from a new reality; the revenue model for web-based applications is advertising, not subscriptions. Online advertising is forecasted to climb to more than $100 billion by 2011 from $43 billion in 2007. It’s a prize too big to ignore.

Despite our growth, as we talk to investors about expanding into new markets, I hear the same warning I heard back in 1999, only this time it’s not about Microsoft, but Google. One Sand Hill VC recently told me not to enter a market “because Google will own it in nine months.” Indeed, today Google is the Goliath, so big that it’s awarded victory before the battle is even fought.

But we all know how the fight between David and Goliath turned out. So if you’re the David, here are three ways to swing the pendulum in your favor:

1. Be a spoiler. Companies consistently make poor strategy decisions when they’re busy trying to defend existing revenue streams. But just because you’re small doesn’t mean you can’t squeeze the market. Create a product at a tenth of the price of Goliath’s. This forces all vendors, including Goliath, to cannibalize their own revenues to stay competitive. And while it will shrink the dollar size of the overall market, you will end up capturing share.

For example, we built our software largely on open source, so we were able to offer BlueTie’s email and collaboration products at a 90 percent discount to Google Apps or Microsoft Hosted Exchange — and still make money. If we cut prices further, it will hurt Google and Microsoft far more than it hurts us (or other, less-entrenched firms like us).

2. Change the yard stick. Advertisers ultimately care about revenue, not eyeballs, page views, or clicks. Today’s ad measurement tools are a long way from giving advertisers end-to-end transparency. Advertisers want to see how spend translates into revenue. You can argue you are providing brand advertising until you are blue in the face, but in a recession, marketers are going to look for results. Even brand advertising has the goal of enhancing the brand to drive long-term customer preference and revenue.

If you create a new way to measure the flow from ad spend to revenue that reduces advertisers’ risk, they will flock to it, and force your competitors to change as well. Even Google will be ultimately forced to adopt the model that advertisers demand.

There is a huge need for better yard sticks to measure advertising effectiveness. If you can raise the bar, you will force everyone else to change focus to match you.

3. Obliterate the business model. There is nothing that is more painful to a market Goliath than a shift in the underlying business model. Selling your product at only a marginal discount is not a new business model. Forging a new distribution channel is, and Blockbuster has yet to fully recover from Netflix. Can you change the product strategy to commoditize the market and make money on add-ons? Think Go Daddy. Can you change the distribution model? Think FriendFeed.

Competing in a David vs. Goliath battle is the most interesting of chess matches. Speed of execution is important, though, as Goliaths will eventually catch up to you. Unless of course, you changed the game so much that there’s nothing to catch up to.

David Koretz is a serial founder. Prior to BlueTie, he founded Network Marketing International, an early web-based sales lead provider. Read more from David on his blog.

(”David vs. Goliath” photo credit: www.funnyjunk.com.)