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In the life of every company, there comes a time when it is faced with the choice of how to extend its reach: Either build a new product or service, or acquire the one that’s already established itself as the best in its class. Larger companies face that question every day, but it is rare for a nano company like ours to have to make such a decision.

I am pleased to announce that Giga Omni Media, the company behind GigaOM, has acquired jkOnTheRun, a blog started by James Kendrick and Kevin Tofel that focuses on the wonderful world of mobile gadgets, including mobile phones and cloud client computers. James and Kevin will join GigaOM, but will continue to work from their respective homes of Houston and Telford, Pa., and jkOnTheRun will become the sixth blog in the GigaOM Network. (James & Kevin write about the deal on jkOnTheRun. Also, coverage on The Houston Chronicle & Techcrunch.)

“Acquiring,” while technically the right word, is a relatively soulless one. I prefer to think of this deal more philosophically. As I see it, we have proudly added two new members to our growing family.

Why jkOnTheRun?

jkOnTheRun is one of the rare blogs that covers the world of mobile gadgets with razor-sharp wit and insight. More importantly, it has a genuinely consumer-centric point of view. I first got to know the blog as a reader and have long considered it good enough to rank among my 10 favorites. (WebWorkerDaily editor Judi Sohn is also a fan.)

Strategically, it’s a publication that rounds out our existing areas of coverage. For instance, GigaOM tracks the world of web infrastructure pretty closely, but very rarely do we write about cloud client machines. And with the exception of the iPhone and some occasional mobile reviews, we don’t provide much gadget coverage, either. I think as we start to cover the world of cloud computing more closely we will no longer be able to afford to ignore the client side of the equation.

What happens to jkOnTheRun?

Absolutely nothing! Sure there are going to be some cosmetic changes, including cleaning up the web site to make room for sponsors and advertisers, but if it ain’t broke, why fix it?

James and Kevin will continue to write their posts, record their podcasts and shoot their videos. The jkOnTheRun feed will be integrated into that of our network and will be syndicated along with our other blogs. We hope some of our readers become part of their community, and hopefully some of jkOnTheRun’s readers will find something in our network that they like as well.

In summary

Getting back to my introduction: We were faced with the choice of either building out a blog that helped us track the mobile revolution more carefully (but with a consumer perspective) or buying one. It would have taken us a long time to build one — buying jkOnTheRun was a far better option.

I think in many ways that is the blueprint of our strategy going forward: When we find blogs that allow us to dig deeper, to complement and extend our areas of coverage, we will acquire them. If we can’t find ones we like, we will build them. But all that is in the future. Today, please join me in welcoming James and Kevin!

New York-based cloud computing startup 10gen launched today with backing from CEO Kevin Ryan’s startup network, Alleycorp. It makes sense, since with several ventures already under his belt, Ryan probably has enough customers to both justify the buildout and break even right away. And the founders know scaling, having built out ad network DoubleClick.

But is it always a good idea to build your own cloud when you get big enough to do so?

Yesterday, for example, I had a great chat with Lana Holmes, a Bay area startup maven, about product management and how to focus on doing the one thing that matters to your company. “The example I use is Amazon,” she said. “They just focused on selling books. And look at them now.”

At their root, Amazon’s EC2 and S3 offerings are the result of excess capacity from sales. The offerings have paved the way for an online world in which compute power is a commodity. The company has subsequently built, on top of those offerings, a layer of billing, services and support for them.

The motivation behind the creation of 10gen is similar: If you successfully launch a number of web firms, at a certain point the economies of scale of others’ clouds starts fall away and you may as well run your own.

It’s easier than ever to launch your own cloud. You’ve got grid deployment tools from folks like 3Tera and Enomaly. Virtualization management can be had from the likes of Fortisphere, Cirba and ManageIQ, to name just a few. And license management (built into cluster deployment from companies like Elastra) is knocking down some of the final barriers to building a cloud that you can offer to third parties as well.

But imagine a world in which there are hundreds of clouds to choose from. Moving a virtual machine is supposed to be as easy as dragging and dropping, and cloud operators will hate that. They’ll resist, putting in proprietary APIs and function calls. Applications and data won’t be portable. You’ll be locked in to a cloud provider, who will then be free to charge for every service. Sound familiar?

My guess is that as the cloud computing market grows and matures, one (or more) of three things will happen:

• Standardization and portability, in which consortia of cloud vendors agree to a standard set of APIs and coding constraints that guarantee interoperability. This isn’t just about the virtual machines; they’re fairly standard already. It’s about the data storage systems and the control APIs that let cloud users manage their applications. This is the mobile phone model, where number portability is guaranteed and there are well-known services like voice mail and call forwarding.
• Shared grid computing, in which smaller clouds sell their excess capacity to bigger clouds. This would let the big cloud dominate while paying the smaller cloud just enough to stop it from launching an offering of its own. Think of this as the electric company model, selling computing between clouds the way a solar-powered household can pump excess electricity into the power grid.
• Specialization, where clouds are good at certain things. You’ll get OS-specific clouds (Heroku is already providing optimized Rails deployment atop EC2.) It’s only a matter of time before we see clouds tailored for specific industries or the services the offer — anything from media to microtransactions. Sort of like the cable channel model, with specialized programming that allows niche channels too survive.

Whatever happens, it’s clear that good old-fashioned branding, plus a healthy dose of experience, will be key to winning as a cloud provider.

During a panel at Interop last week that I sat on with folks from Amazon, Opsource, Napera, Syntenic and Kaazing, I asked the audience how many of them would entrust Microsoft to run a cloud with Microsoft applications, and how many would prefer to see Amazon running a Microsoft kernel on EC2. Roughly 75 percent said they’d trust Amazon to run Microsoft’s own apps rather than Microsoft.

So when’s the right time to launch a cloud computing offering of your own? Unless you have the branding and reputation to support that launch — or you can re-sell excess capacity to partners or specialize — maybe never.

If this story interests you then you should definitely check out our upcoming conference, Structure 08.

The latest set of figures related to venture capital investing in the U.S. indicates that the growth will continue. But venture firms are battening down the hatches to prepare for a rough 2008, as the number of deals by stage shows a steady rise in late-stage rounds.

Because market conditions were ripe for public offerings of venture-backed startups for only a short time in 2007, there are still plenty of later-stage companies unable to make an exit. Sure, the M&A markets are still going strong, but according to Nina Saberi, a managing general partner with Castile Ventures, valuations are facing a lot of downward pressure.

Castile will continue funding companies with those facts in mind, she noted. In other words, if you’re after a Series C, a big bundle of cash may be hard to find, since M&A is the most likely exit and acquirers are going to be more miserly. That’s a shame, because a bundle of cash is what startups are going to need through any prolonged recession, especially if it stops businesses from buying software and hardware.

The money is still flowing. Venture capitalists invested $7.1 billion in 922 deals in the first quarter of 2008, according to the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association. But it was a decline from the $7.5 billion invested in first quarter of 2007 when VCs funded 861 deals. Quarterly investment activity was down as well, falling 8.5 percent from the fourth quarter of 2007, when $7.8 billion was invested in 1,045 deals.

John Taylor, vice president of research with the NVCA, pointed out the deal volumes in the first quarter tend to be lower than those in the rest of the year. As the number of deals done in the fist quarter of this year is still above those of previous years, he’s optimistic that the industry will continues its slow and steady growth, even despite an economic recession.

Most industries received less money than they had in the fourth quarter with 11 of the 16 industries experiencing a decrease in the level of investment and 14 of the 16 experiencing a decline in deal volume. Only semiconductors saw an increase in both the number of deals and dollars, with $556 million invested in 50 deals. Although when asked specifically about the future of mature industries such as chips, Saberi wasn’t as optimistic, saying it wasn’t an area that was good for early-stage investing. Given the expense and technical difficulties that come with designing chips, she’s probably wise to steer clear.

Personal file storage, sharing and syncing is one of those categories of technology problems that, despite all efforts, no one ever seems to get right. Most of the current offerings, even the better ones, leave something to be desired.

You’re always being asked to jump through one hoop or another: If you’re not constantly uploading and downloading files that you amend or need to amend, you’re being forced to use some special peer-to-peer software. But one service that comes pretty close to getting it all right is DropBox, which is available via a public beta today (of which there are 200 available for GigaOM readers using the code “om200.”)

Dropbox is basically an intelligent combination of Box.net, dot.mac and Microsoft’s FolderShare syncing service. It makes online storage and sharing of files dead simple — as simple as dragging files into specially market local folders.

The concept was cooked up by Drew Houston and Arash Ferdowsi, MIT dropouts and Y Combinator alumni who are running their three-person startup out of a studio apartment in San Francisco. For the past few months they’ve been working on polishing DropBox, the desktop software (client) and an online service.

The software, once downloaded, is simple to install (it works on both Windows and Mac) and integrates with the file browser. It runs quietly in the background. You create folders inside the DropBox folder and then just drag and drop them. And the files are constantly synced with your online storage locker — any time a file is changed, the changes are sent to the online folders, which can be accessed via a web browser even if your home machine is shut off. [Click here to watch the Screencast

What’s really cool is that the system keeps revised versions of the files as backup, just in case you accidentally erase or damage the “live” version of a document. You can click and share the “URLs” of every file with anyone by simply sending them an email (a feature that opens up viral growth opportunities for DropBox).

I met with Houston and Ferdowsi over the weekend and discussed their business plans. Once DropBox comes out of beta, they want to charge for storage — a refreshing thought amidst all the irrational chanting of “free.” The duo is looking to expand DropBox’s appeal to beyond the early adopters.

While it seems that everyone wants to develop a better syncing or storage or sharing technology, the population at large doesn’t seem to care, and is happy carrying (and losing) their files on their USB sticks or emailing them to themselves. When I noted that to the two young cofounders, they agreed. Their success, they said, lies in the ability to change mainstream behavior, and they are confident that the relative ease of use of their offering will win the masses over. To that we say good luck. DropBox is pretty good.

Blog spam blocker Defensio recently introduced support for OpenID, which is on the upswing after being endorsed by a number of industry heavyweights. OpenID lets Defensio track posters’ behavior. In theory, knowing someone’s commenting behavior can make spam blocking more effective: If someone’s a frequent commenter, they’re safe; but if someone appears out of nowhere and starts commenting, they’re more likely to be up to no good.

The state-of-the-art answer for many bloggers is a plug-in called Akismet. Authored by WordPress creator Matt Mullenweg, the Akismet plug-in receives 16 million calls a day to its API . It isn’t just for WordPress — 30 percent of those API calls come from non-WordPress sites. “We created Akismet because we saw people abandoning blogging because of the trackback spam issue,” said Mullenweg.

Defensio, launched in November 2007, wants to replace Akismet. The startup incorporated two new tricks to help block spam: context and ranking. First, their spam-detection algorithms look at the contents of the post, as well as its comments. So if you write about Viagra a lot, it’s more likely that those Viagra comments aren’t spam. Second, the service returns a “spamminess ranking” rather than a simple spam/not spam decision. This means that bloggers can view the least-spammy (and wrongly classified) comments first.

“We talked to a lot of bloggers who were complaining about spam and false positives,” said Carl Mercier, Defensio’s CEO and founder. “Akismet is by time, but users need a way to show comments by spamminess or by article.”

It’s unclear whether OpenID will give Defensio the upper hand over Akismet. For starters, it depends on the Internet community adopting OpenID in large numbers. Mullenweg is skeptical. “OpenID will change the Internet in interesting ways, but preventing spam is not one of them. Authentication and lightweight identity have not proven barriers to spam in other mediums, like email or ICQ,” he said. “I think Defensio’s use of OpenID is a marketing gimmick.”

Mercier originally set out to make a spam-blocking service like Postini. But when he saw how crowded that market had become, his startup incubator, Karabunga, decided to focus on blogs. He believes users of blog tools other than WordPress will prefer Defensio, citing the links between Akismet and WordPress. But Mullenweg points out that users of sixapart voted Akismet the plug-in they need most.

Some veteran bloggers think there’s room for improvement in blog spam. “It’s not that Akismet does a terrible job, but there doesn’t seem to be much new work being done on it,” said Ben Yoskovitz on his Instigatorblog. “Even some of the Administrative interface changes alone make Defensio worthwhile.”

Much like Akismet, Defensio is offered as a plug-in to blogging platforms alongside a service in the cloud. The company has also opened up its API so the core engine can be used to detect spam in other applications. It hopes to make money through partnerships, as well as paid versions for commercial users and high-traffic sites. But as an alternative to WordPress-owned Akismet, its biggest value may be a deal with other blogging platforms.

Full disclosure: WordPress powers the GigaOM network and True Ventures, one of its investors, is also an investor in GigaOM

Matt Mullenweg, founder of Automattic and creator of open-source blogging system WordPress, stopped by my apartment earlier this week. Matt, who is one of my closest friends, brought his Texan sense of humor and all-around good cheer, both of which were much needed following my little medical episode.

While we were chatting, he let it slip that Automattic had raised a whopping $29.5 million in a Series B Round of funding, including a strategic investment from The New York Times Co. Previous investors True Ventures, Polaris Ventures, and Radar Ventures also invested in this round. (Full disclosure: both Automattic and GigaOM are backed by True Ventures.)

Update: As part of this funding, some insiders including senior management whose options had vested were given an opportunity to cash out. The Wall Street Journal reports:

“Still, Automattic’s investors are taking pains to keep the company’s founders motivated: Some of the $29 million will be used to help company founders and others cash out some of their holdings in the private company, Mr. Black said. The practice has become more common in Silicon Valley as start-up founders spend longer building their companies without any payday.”

It is quite an event for the company, which began with Matt mucking around with code in his Houston bedroom. As one of the first adopters of WordPress, I got to know Matt well, yelling at him for not fixing bugs (which I still do) and always telling him what “features to add.” He took note of all it, and some of those features have actually shown up in the software. Eventually he moved out to San Francisco and started Automattic.

In recent months, Automattic’s premier offering, the free hosted blogging service WordPress.com, has started to grow by leaps and bounds. In addition to the 2.2 million blogs that it hosts (which generates, according to the latest trailing 30-day numbers from Quantcast, 42 million unique U.S. page views, 114 million global uniques and 482 million page views overall), WordPress.com is becoming an attractive option for media groups that don’t want to muck around with infrastructure. In addition to the GigaOM network of sites, CNN, Fortune and Fox are some of Automattic’s premier customers. Even more impressive (as far as I’m concerned) is that New York Yankees pitching star of the future, Phil Hughes, has a blog on WordPress.com as well.

So what does Automattic need the money for? After all, from what I know of the business, Automattic has been bubbling around the break-even point for a while now. Matt explains that they are going to roll out newer, hosted services such as BBPress (forums), and will expand their other product offerings, such as Gravatar and the spam-protection service Akismet. The money will be spent to hire more engineers and build out a more robust infrastructure.

That would be a start. Anne Zelenka made an impassioned case for using WordPress to build a social network, and I wouldn’t be surprised if we see some social features start to creep into WordPress.com as well. They just boosted their storage capacity to three gigabytes, which indicates that they are serious about allowing bloggers to add video and other multimedia content to their blogs.

Update: Frankly, I am myself getting sick and tired of repeating myself about the all-important “information transmission from partner sites” aspect of Beacon. That question remains unanswered in Zuckerberg’s blog post, which upon second read is rather scant on actual privacy information. Here is what he writes:

If you select that you don’t want to share some Beacon actions or if you turn off Beacon, then Facebook won’t store those actions even when partners send them to Facebook.”

So essentially he’s saying the information transmitted won’t be stored but will perhaps be interpreted. Will this happen in real time? If that is the case, then the advertising “optimization” that results from “transmissions” is going to continue. Right!

If they were making massive changes, one would have seen options like “Don’t allow any web sites to send stories to Facebook” or “Don’t track my actions outside of Facebook” in this image below.

I think Facebook needs to clarify this point further, because currently, despite this mea culpa, I don’t think it’s easy to trust Facebook to do the right thing with the information they continue to collect. You can also share your thoughts on our Facebook Question of the Day Application. (Original post below the fold.)

Facebook founder and CEO Mark Zuckerberg, after taking it on the chin for nearly two weeks, is apologizing about the company’s Beacon advertising platform fiasco. In his blog post, in which he explains his side of the story and rationalizes his reasoning, there is one paragraph which says it all:

We’ve made a lot of mistakes building this feature, but we’ve made even more with how we’ve handled them. We simply did a bad job with this release, and I apologize for it. While I am disappointed with our mistakes, we appreciate all the feedback we have received from our users.

He goes onto say that while he thought Beacon was a great idea, the company might have gone overboard.

The problem with our initial approach of making it an opt-out system instead of opt-in was that if someone forgot to decline to share something, Beacon still went ahead and shared it with their friends.

No shit! I think they tried to push the limits, and got some push back, and that’s that. Regardless, had people not contacted them, as Zuckerberg puts it, they would have gotten away with it.

Instead of acting quickly, we took too long to decide on the right solution. I’m not proud of the way we’ve handled this situation and I know we can do better.

I think this is a good move by Zuckerberg and I hope his team learns from it. This is the second time they have tried to test the limits of their community and gotten some flack for it. It would be better if they asked — they are a social community — and being social means listening and talking with each other first, not after the fact.

Our entire coverage of the Beacon Gate

All these rumors about Facebook getting a massive investment from one corporate behemoth or another have got to make you wonder: Why would a company that is expecting revenues of $150 million, and profits to boot, need fresh capital? Why would a company whose dominance of the social networking space is being touted as some sort of manifest destiny possibly need this sudden influx of cash?

That is the real $300 million to $500 million dollar question. The Wall Street Journal thinks it’s to build an advertising platform to cash in on its fast growth. And while that might be so, there are other, more pressing needs for all that money. The biggest one: Andrew Cuomo.

The New York attorney general has started investigating the safety measures Facebook has put in place, and based on his preliminary investigations, he is not happy. His staff has found sexual predators and a wide variety of pornographic material, including images and videos, prompting him to issue a subpoena.

“My office is concerned that Facebook’s promise of a safe website is not consistent with its performance in policing its site and responding to complaints,” Cuomo said in a press release.

“Parents have a right to know what their children will encounter on a website that is aggressively marketed as safe.” Cuomo is angered by the fact that Facebook has “ignored several — and repeated — complaints from our undercover investigators concerning persons who made inappropriate sexual advances to underage users.”

Call me a conspiracy theorist, but the way it looks to me, Facebook needs money for what is clearly a big crisis facing the company. MySpace, the company the FB-crew used to mock, has already had to deal with a similar mess, both legal and image-wise, which not only proved to be a major disruption to their business but cost a ton of money. And that was without a subpoena.

Facebook’s subpoena is going to require some serious legal resources and even more serious dough. Today it’s New York, tomorrow it could be attorney generals from any of the other 49 states. What if the European Union gets on board? Who’s going to foot the bill then? Who is going to make up for the loss of advertising revenues if the brand advertisers deem Facebook unacceptable? Ergo, time to find an outside funder.

MySpace had already found its corporate sugar daddy, News Corp. (NWS), when its mess started to unfold. In its case, sporadic articles in local media became a national story that led to Fox Interactive hiring a safety czar and implementing a plan that costs the company tens of millions of dollars every year.

A similar scenario might be awaiting the Z-meister and his crew. And the fact that it would involve a flip-flop wearing, young Harvard dropout running the hottest web site on the planet? That would be just too good of a story for the mainstream media to resist.

Facebook will have to do some nimble dancing here and come up with technologies/methods that add layers of safety to their network. Scanning for pornographic images and videos, developing technologies that prevent predators and other such issues are something Facebook will have to deal with — they cannot be wished away.

Never mind that the not-for-profit groups (and there are many) would want them to undertake educational programs and what not — just like in the case of MySpace. To do so, the company will have to boost its headcount, which already stands at 250. And more staff means more real estate for which it’s going to have to pay. As a comparison, MySpace has over 1,000 people working for them.

Do the math: it all adds up. No wonder Facebook needs money… fast.

A $350 million buyout of Zimbra by Yahoo (YHOO), Thunderbird being spun out as an independent entity by Mozilla, and the impressive launch of San Francisco-based Xobni: Email, the most socialist of all web apps, is back on the front burner. As old as the contemporary Internet itself, it remains a constant source of pain and pleasure for all of us.

Every morning starts with a groan at the sight of dozens of unanswered emails. And yet somewhere in there is a note from mom, sister or another loved one that brings a smile to our faces. There is no denying the fact that as an application it has most, if not all, of our attention.

Given its critical role in our digital lives, I wonder if email could be the underpinning of a social environment — much less a social network and more a “relationship and interaction manager that aggregates various social web services” — that doesn’t require rewiring our brains and changing our behavior.

The new generation of Internet users tends to rely more on social networks for communication, but for the rest of us, email is still the hub of our daily lives. (According to one study, there are about 1.2 billion email users and 1.8 billion active email accounts worldwide.)

The demographic dissonance aside, email for a substantial portion of the population can be a good starting point for a networked experience. It has all the elements needed for a social ecosystem, namely the address book. And if you’re like most people, your address book is organized by friends, family, work, and acquaintances.

In other words, the relationship buckets (and the level of intimacy) are already predefined and have relevance. From there, all communication-related information — mobile numbers, geo-location data, instant messaging identities and of course, email addresses — are just a click away. So what’s missing? Discovery and presence, and synchronicity. The good news is that a lot of these issues are being worked on by two San Francisco-based startups, Xoopit and Xobni, the latter having just launched.

First lets look at Xobni (which would have been my pick for the coolest company at TechCrunch 40) and what they have built. They have an adjunct application for Microsoft Outlook, which scans through the entire email database and quickly establishes relationships among the people you email, and ranks them according to frequencies and relevance.

The best feature of this application is that it can tell you when a specific person is most likely to reply to you and how quickly. It is not discovery and presence in the purist sense, but it’s close enough. Future versions of Xobni’s software will bring together various web services — everything from Flickr photos to Twitter. I like the idea of a quick query that matches a name with a photo from Flickr or Photobucket. Similarly, it would be great to find a way to integrate Twitter messages into the same client and not deal with a separate application. (I wrote about this Universal Communication Client for Business 2.0 back in July.) (If you want to try Xobni, use invite code GigaOM — only the first 100 people are going to get the beta downloads.)

While Xobni is focusing on Microsoft Outlook, startup Xoopit is focusing on the web mail universe. By combining some of its own proprietary technologies, among them a unique file system and search and messaging protocols including RSS, Xoopit has come up with such a unique user experience that it made me think: This is what Gmail should have been.

The company is co-founded by Bijan Marashi and Jonathan Katzman, formerly of Inktomi and TellMe Networks, respectively. Xoopit is very early in its development cycle but is still very impressive. (You can sign up for their beta here.)

The entire system is built to bring all types of web services right into the inbox. You go to the Xoopit web site, sign up, and input either your POP3 or IMAP mail server information. The messages immediately start getting pulled into your Xoopit account. If you have an IMAP server, then the messages reconcile with your original inbox. From here on Xoopit lets you view your inbox (and your attachments) in many different ways.

Take photos, for example. Most of us end up emailing photos (or links to photos) to each other. Links of photos are used to access them, while attachments are used to get a “preview.” The Xoopit GUI makes it easy to see photos on a grid, much like you would on, say, an iPhoto. On social networks photos are shared via some sort of a photo (or slideshow) widget. In this case, the email environment becomes the place where you can experience photos and videos. The next obvious step for Xoopit is to bring in Twitter and other such services into their playground.

In many ways, Yahoo might have taken the wrong approach to its new social networking experiment, Mash. Instead of starting as a network, it should have started from within Yahoo’s email service, which has some 250 million subscribers. Regardless of what Yahoo does, the fact of the matter is that “email” is finally getting some sorely needed attention, and let’s just hope it leads to something better, something that doesn’t make us all groan every time we open our inbox.