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In planning for last Wednesday’s Structure 08 conference, we at GigaOM had our heads in the cloud. We aimed to draw attention to the resurgence of hardware underlying the various software and web services that consumers and businesses now use, and hoped to define the emerging set of offerings that comprise cloud computing.

That definition is important. But not as important, I realized, as figuring out which business models will win out. Because while everyone wants to push their own definition of cloud computing, at its heart, cloud computing is about moving, storing and delivering data on demand.

After moderating two panels, watching almost all of the speakers and having numerous conversations, I came away with the belief that most people view cloud computing not as access to computing resources, but access to services ranging from application-specific offerings such as Salesforce.com to compute grids like that of GoGrid or EC2. And when it comes to buying into such data services (be they software, a platform, storage or compute time), there are certain questions that need to asked, among them:

How do I get my data into the cloud? Maybe it’s as simple as calling up Salesforce.com, or a bit more complicated, like using an API to tap into EC2, but to use a cloud you’re going to need bandwidth. Whether it’s figuring out how to measure and appropriately charge people for bandwidth as Google is attempting to do with their structured meta data, or contracting with a CDN to lower latency, the delivery of data in and around the cloud represents one of its biggest costs and is subsequently one of the areas that’s ripest for innovation.

What format does that data need to be in? Different clouds work with different software. Some clouds work with Windows and others are only friendly to the LAMP stack. Various people expressed the idea that the industry would divide along the lines of low-margin, general purpose clouds like Amazon Web Services, and high-margin, special-purpose clouds such as Heroku’s Ruby on Rails testing environment (which is built on AWS). The key is to know what you need from a cloud before investing.

How can I change and move that data? The differing programming languages or operating systems accepted by various clouds are only part of the issue. The still undecided fight will be between proprietary formats such as BigTable and open standards that are truly standard, as in used by many, many developers. It’s a young effort, so there are no set standards yet, but until there are, transferring data kept in the cloud will never be as seamless as the bank analogy pushed by Sun CTO Greg Papadopoulos.

So while I spent most of my time trying to figure out which areas of compute infrastructure can be offered as a service while providing the highest margins or most defensible market share, I should have been keeping my eye on the data, because how providers treat the data will determine how their business models evolve.

During a break at GigaOM’s Structure 08 conference this week, Found|READ sat down with VMware co-founder and chief scientist, Dr. Mendel Rosenblum.

Dr. Rosenblum developed VMware’s virtualization software while working on a supercomputer research project with his graduate students at Stanford University, where he remains an active professor of computer science. In 1998 he went on leave from Stanford to launch VMware with four business partners, including his spouse, Diane Greene, who remains the company’s CEO. It wasn’t easy going. Back then, VCs had a hard time wrapping their minds around the business opportunity in Dr. Rosenblum’s software, which allows one server to do the work of many.

Today, VMware has 100,000 customers and is expected to sell nearly $2 billion worth of its products this year. And that’s after debuting on the New York Stock Exchange last summer in one of the most successful IPOs since Google.
Om spoke with Dr. Rosenblum in December about the history of the company and state of the virtualization market. Here Dr. Rosenblum talks about being a founder.

F|R: Some of our readers refer to founding as a “lifestyle,” not a job. What convinced you to table your very well-established career in science and academia to risk launching a startup?

Rosenblum: We were working on this supercomputer, trying to figure out how you could build scalable computers of a very big size. I wasn’t really that interested in high-performance computers — for one thing, you’d sell very few of them, other than to the government. What motivated me was wondering whether you could use these computers for something else. I had this idea about virtualization, that you could carve this one, big computer up and use it for a whole enterprise worth of computing. I was just more interested in working on something that would have a large impact on the masses.

One of the nice thing about Stanford is that the path is pretty well worn into entrepreneurship, so it didn’t seem like this radical thing to become a founder. If you had an interesting idea, there were plenty of people who you could talk to about it. Part of what convinced me were the grad students; they’d seen the Yahoo people go off and so they were excited about starting a company. I was sort of trailing along thinking, “Well, it sounds like a fun thing to try out.” But the deciding factor was when my wife, Diane, got interested in it. That made it incredibly easy for me.

F|R: Finding the right co-founder is a critical step. There is an unspoken rule in Silicon Valley that VCs won’t fund husband-and-wife teams. You did not raise VC money to launch VMWare, but what advantages did you and Diane Greene have as a founding team because of your status?

Rosenblum: Yes, we just did some self-funding in the beginning and then brought in some friends later — angel investors — and that was enough to do it. I can imagine that husband-wife teams can work out badly, but in our case, I had confidence in her dealing with the business side and she had confidence in what we were doing on the technical side and so we just partitioned up the company that way. And we didn’t really have any conflicts whatsoever. The nice thing about being married is that is gives you even more time to talk everything through, and it kind of consumed our life for a long time — maybe to the detriment of our children — but we just had great communication. It was a benefit, too, in co-founding with faculty from Stanford (Scott Devine, Dr. Edward Wang and Edouard Bugnion). We knew were launching VMware with people we trusted.

F|R: What was the most difficult thing about VMware’s 10-year run to its IPO? And can you offer a piece of advice to founders just starting out?

Rosenblum: When we first started out the whole challenge was trying to convince people that virtualization was a good ting, what’s it’s good for — and trying to figure out for ourselves what it could be used for! There were challenges on the technology side and challenges about how to go to market. We took the approach that we wanted to partner extensively with [hardware vendors like IBM and Dell]. That ended up working out pretty well, though lots of people have made lots of money in shorter time that we did.

One thing I would say is important: Make sure there is more than one application for your technology. There were a dozen applications for VMware that we didn’t pursue. Some we did, and they didn’t work out. In the dot-com boom, we thought we’d sell our software to ASPs, who’d use it to manage other people’s applications more efficiently. Then all the ASPs went out of business. So we switched strategies to focus on selling VMware into enterprises, so companies could use it to run their own servers better.

Richard Moross may have started his web-based printing company, Moo, because he was bored with the standard business cards out there, but now his four-year-old startup is about to enter the world of the boring head on. As early as next week, Moo will start selling the standard-sized, Docker-toting-executive business cards — that same product its worked so hard to differentiate.

A case of Moo growing up? It’s the most-requested product from Moo’s customers, Moross tells us, so, yeah, if selling something that users ask for is a sign of maturity, Moo’s getting both older and wiser. And while business cards might not have the cool factor of the mini-cards (which are half the size), they are much more practical in the traditional networking world.

Moo’s business cards will cost $22 for 50 of them — a bit more than its mini-cards, but they will use the same paper and have most of the same customizable features, along with some new color and graphics options. They’ll fill the gap between the expensive, bulk-sale cards from a design shop and the cheaper but lower-quality cards that can be bought online, says Moross.

Of particular interest to the earth2tech types is a 100 percent recycled and biodegradable eco-card option, for no extra charge (Moo customers, you have no excuse not to get this option!). Moross also claims that its printing process is much more efficient than the standard, and points out that printing in small batches can also cut down on wasted cards.

As Om put it eloquently last year, “Moo is among the first wave of young businesses finally putting the so-called Web 2.0 technologies to work to make good on the promise that this much-ballyhooed generation of startups has been vapidly pledging for far too long: That Web 2.0 would reinvent the boring, the old-fashioned and the antiquated.” Hopefully Moo will continue to make good on that promise, and won’t start equating boring with grown-up.

Image courtesy of Moo and Flickr.

Keep an eye out on Copenhagen-based help desk-on-demand company Zendesk. The firm, started by Mikkel Svane, just raised half a million dollars in seed money from angel investors including Pageflakes co-founder Christoph Janz. Just like 37Signals offers you project management tools or hosted chat, Zendesk offers you a simple way to manage all incoming help desk inquires.

It’s not sexy, like some social networks, but it is useful and fully featured. No surprise the company counts Web 2.0 startups like Coupa and EditGrid along with convenience stores TETCO and Oxford University Press among its users. Zendesk would fall into our “small really is beautiful” category of startups.

Greg Linden was one of the key developers behind Amazon’s recommendations system, which recommends books, movies, and other products to Amazon customers based on their purchase history. He subsequently went to Stanford and picked up an MBA, and in January 2004, he launched a startup named Findory, which offers personalized online newspapers. It’s hard to imagine anyone more qualified to make a startup like this a success, yet Findory shut down in November 2007. In a brilliant post-mortem, Linden says his big mistake was to bootstrap his company while trying to raise funding from venture capital firms — he just couldn’t convince them to invest. He should have raised his funding from angel investors instead.

Where to raise funding is an important decision every startup founder has to make. The three viable sources at the very early stages of a company are:

• Venture capital.
• Angel investors. Usually wealthy individuals, but includes outfits such as Y Combinator.
• Friends and family. Yourself, if you can afford it.

To decide which option is best for your startup, you need to understand how investors evaluate companies. There is a range of criteria, of course, but the three most important ones are team, technology and market, and angels and VCs evaluate them in different ways. Here’s how.

How Venture Capitalists Evaluate Startups

• Market — VCs want to invest in companies that produce meaningful returns in the context of their fund size, which typically is in the hundreds of millions of dollars. To interest a VC firm, a company needs to be addressing a large market opportunity. If you cannot make a credible case that your startup idea will lead to a company with at least $100 million in revenue within 4-5 years, then a VC is not the right fit for you. It’s often OK to use consumer traction as a substitute for market opportunity; many VCs will accept a large and rapidly growing user base as sufficient proof that there is a potentially large market opportunity.
• Team — VCs use simple pattern matching to classify teams into two buckets. A founding team is deemed “backable” if it includes one or more seasoned executives from successful or fashionable companies (such as Google) or entrepreneurs whose track record includes a least one past hit. Otherwise, the team is considered “non-backable.”
• Technology — VCs aren’t always great at evaluating technology. To them, technology is either a risk (the team claims their technology can do X; is that really true?) or an entry barrier (is the technology hard enough to develop to prevent too many competitors from entering the market?) If your startup is developing a nontrivial technology, it helps to have someone on the team who is a recognized expert in the technology area, either as a founder or as an outside adviser.

Here’s the rule of thumb: To qualify for VC financing, you need to pass the market opportunity test and at least one of the other two tests — either you have a backable team, or you have nontrivial technology that can act as a barrier to entry.

How Angels Evaluate Startups

There are many kinds of angels, but I recommend picking only one kind: someone who has been a successful entrepreneur and has a deep interest in the market you are targeting or the technology you are developing. Here’s how angels evaluate the three investment criteria:

• Market — It’s all right if the market is unproven, but both the team and the angel have to believe that within a few months, the company can reach a point where it can either credibly show a large market opportunity (and thus attract VC funding), or develop technology valuable enough to be acquired by an established company.
• Team — The team needs to include someone the angel knows and respects from a prior life.
• Technology — The technology has to be something the angel has prior expertise in and is comfortable evaluating without all the dots connected.

Here’s the angel rule of thumb: You need to pass any two out of the three tests (team/technology, technology/market, or team/market). I have funded all three of these combinations, resulting in either subsequent VC financing (e.g. Aster Data, Efficient Frontier, TheFind), or quick acquisitions (Transformic, Kaltix — both acquired by Google).

Friends and Family, or Bootstrap

This is the only option if you cannot satisfy the criteria for either VC or angel. But beware of remaining too long in “bootstrap mode.” An outside investor provides a valuable sounding board and prevents the company from becoming an echo chamber for the founder’s ideas. An angel or VC can look at things with the perspective that comes from distance. Sometimes an outside investor can force something that’s actually good for the founder’s career: Shut the company down and go do something else. That decision is very hard to make without an outside investor. My advice is to bootstrap until you can clear either the angel or the VC bar, but no longer.

But back to Greg Linden and Findory. By my reckoning, Findory passes the team and technology tests from an angel’s point of view — if you pick an angel investor who has some passion for personalization technology. But it doesn’t pass any of the VC tests. Given this, Greg should definitely have raised angel funding. My guess is that this route would likely have led to a sale of the company to one of many potential suitors: Google, Yahoo or Microsoft, among many others. Of course, hindsight is always 20-20. I have deep respect for Greg’s intellect and passion and wish him better luck in his future endeavors.

Anand Rajaraman is a co-founder of Kosmix.com and a founding partner of Cambrian Ventures. Full disclosure: He is also an investor in GigaOM.

Mistake were made when hyping Ultra-wideband over the past few years. However, UWB may get a second chance as streaming media becomes more important and computers become more portable. I spent yesterday at the Portable Computer and Communications Association meeting in Austin learning about UWB as a wireless personal area network. I’m not a big believer in the technology so far, but was heartened by the admission of speakers who pointed out that the first implementations of the technology sucked.

UWB has its benefits. It’s low power and high bandwidth with theoretical limits of 480 Mbps over a really short distance. How short? With an external whip antenna you have to stand about a yard away to get the highest connection rates. With an embedded antenna, data rates are more than halved at around 150 Mbps, according to a presentation today from Dell. But at short range it’s a high enough speed to deliver decent video.

So while UWB backers are enthusiastic that the standard has gained the use of spectrum outside of the U.S. and since laptops from Dell, Toshiba and Lenovo are shipping with UWB chipsets for wireless USB, I’ll cede it the desktop, but I still believe widespread media streaming applications will depend on how well they do with the next generation of products coming out later this year. A demo from chipmaker WiQuest showing a Dell laptop connected via wireless USB to a jerry-rigged Samsung monitor won me over because it enables true wireless docking for a laptop. If mobile Internet devices take off, that could be something consumers find valuable. Next year wireless USB should find its way to mainstream monitors just in time for smaller, portable PCs.

The technology is designed for point-to-point wireless transfer. When compared to Wi-Fi, which was designed as a whole-home wireless technology to connect to the web, UWB is a hose to Wi-Fi’s swimming pool. This could make it a better option for use in cameras and for media players, but Wi-Fi is already in use in those markets. UWB also has a strong advantage because USB ports are already in most consumer devices, and wireless USB doesn’t require a lot of software changes for it to work. The best technology doesn’t always win, however, and Wi-Fi, Bluetooth and eventually wireless HD standards are gunning for the same markets as UWB.

In the case of Wi-Fi and Bluetooth, they’re already known consumer brands and embedded in a wide variety of devices. UWB needs to get its marketing machine together if they want to get off of the desktop and into cell phones, set-top boxes and other devices that could use a short-range, low-power, high-bandwidth technology.

On the eve of Structure 08 in San Francisco, the folks behind many of today’s cloud computing initiatives will be gathering at CloudCamp. GigaOM is one of the evening’s sponsors:

CloudCamp was formed in order to provide a common ground for the introduction and advancement of cloud computing. Through a series of local CloudCamp events, attendees can exchange ideas, knowledge and information in a creative and supporting environment, advancing the current state of cloud computing and related technologies.

If you’re in the city, come check it out. The event, which will be held from 5-9 pm on June 24th, is community-backed and free to attend. And it will be a great primer on cloud computing.

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

Internet video portal and software maker Veoh has raised $30 million from Intel Capital, Adobe Systems Inc. and Gordon Crawford, senior vice president of Capital Research Global Investors, NewTeeVee is reporting, bringing the company’s total funding to just shy of $70 million. The funding for Veoh was just one of the $60 million worth of investments unveiled by Intel Capital; the investment arm of the chip maker also led funding rounds in online security company Accertify, workforce management software maker TOA Technologies, energy efficiency and smart grid company Grid Net, online health video network HealthiNation and Latin America-focused social networking company Vostu, as well as India-based online education company Vriti Infocom and Czech Republic-based online retailer Internet Mall.

Has the long-expected shakeup in the online video industry finally arrived? Video-sharing startup Veoh has blocked visitors from all but 33 countries from accessing its site, a spokesperson confirmed to NewTeeVee today, citing the desire to “re-focus those resources.” She said, “Competition is high in the video space and we want to make sure we’re differentiating ourselves in terms of products and ad platforms to monetize. As a startup we just have to make choices.” To continue reading this story, click over to NewTeeVee.

BooRah, a semantic vertical search engine founded by former MetroFi employees, has indexed 100,000 blogs and over 100 review sites to create a nice restaurant review and search service for a variety of U.S. cities. Today, the Mountain View, Calif., company launched a partnership with online reservation agent BookingAngel that will allow folks to make online reservations with any California restaurant through the BooRah site.

There’s a lot to like about this startup — namely that it already has revenue from signing ad partnerships with 20 local newspapers — but also because Co-founder and CTO Nagaraju Bandaru wants to give back to the community.

He’s not talking about building houses in New Orleans, though. He’s giving back to the technical community through open sourcing some of BooRah’s entity mapping code, which analyzes semantic relationships on web sites and determines what type of business operates that site. As he explains, “We do a lot of stuff on MySQL that before would have cost us millions in Oracle databases, and $50,000 a year in fees, but we can now start a company for much less.”

So in a few months he plans to open source that code for other startups to use. Other than making me feel all warm and fuzzy about entrepreneurs sticking together, such efforts will only hasten technological innovation for end users. Even if BooRah doesn’t make it (although, given Bandaru’s efforts so far to get both advertisers on board and provide a premium service for restaurateurs, I think it has a good chance), its technology could enable another startup to quickly get up and running with a different use for that code.

Strands, a Corvallis, Ore.-based startup that has shown success in the music social recommendation space, is relaunching Strands.com into a private beta online activity aggregation service. The company hopes to take the lifestreaming features offered by Web 2.0 darling FriendFeed a step further by adding the ability to build a “taste profile” based on your social media usage patterns.

Through the taste profile, Strands intends to battle the information overload from services such as Twitter and FriendFeed by using your online social circle to filter out relevant content you will find pertinent. “Hot Posts” will show you which online media items, such as news stories and videos, are currently popular among your friends to help you discover new things.

The company recently raised $55 million in capital and reports sales of $12 million in 2007. When I asked Jason Herskowitz, Strands’ VP of Social Media, how the company plans to monetize its new offering, he said Strands is merely looking for eyeballs to drive sales of its other offerings, such as Strands Social Player and Strands Business Solution.

I’m skeptical about how successful the new Strands.com service will be — it’s yet another service to sign up for and adopt. However, if implemented correctly, the service stands to bring the signal-to-noise ratio of lifestreams down to a tolerable level.