Dont Be Another Dot-Com Dog

Savvy startups are tossing juicy bones to hungry partners.

The dot-com crash has inspired caution among startups. Tight funding has encouraged a return to more traditional business practices and has made growth through partnerships more attractive.

No longer opting to throw funds at broad, mass-marketing campaigns, start-ups are becoming more strategic. "We learned to be stingy on how resources are spent and pay attention to existing channels that have been built up over the past 20 years," says Naseem Tuffaha, who directed Microsofts developer programs on Web services before starting CheckSpace with other Microsoft veterans last March.

CheckSpace offers hosted electronic payment services for small businesses. The company is the exclusive electronic check provider for and can send e-payments from within Intuits QuickBooks. "Our strategy is to inte- grate with banks," says Tuffaha.

CheckSpace hopes to achieve critical mass through resellers and other allies.

Other startups, like gateway provider Bluetrain, have similar alliance strategies. "A lot of folks are finding out that the laws of physics cant be suspended for an indefinite period," says Bluetrain CEO Jack Weixel. "Core to this is a distribution channel."

The company recently signed 16 software companies to offer hosted application services through Bluetrains Passport application gateway, and it inked deals with eight national and regional ISPs to distribute the applications. Bluetrain launched itself as a VPN provider in 1998 and switched to application software the following year—it targets small and midsize businesses. Bluetrains gateway aggregates billing data for its distributors and tracks changes in users accounts, letting them add applications through Passport on the fly. It also allows applications to share data via XML.

The ASP industry, for Weixel, boils down to service. "At the end of the day, software is dead," he says. "What matters to users is services."

For startup Scale 8, company founders realized that creating hot technology and building a business are different skills. Last December, founder Josh Coates replaced himself as CEO with Hewlett-Packard veteran Dick Watts, who headed worldwide sales and distribution during a 30-year career at HP.

Scale 8 offers storage services to companies sending rich media over the Internet. The services are based on parallel computing technology that Coates developed while at U.C. Berkeley.

Akamai both resells and uses Scale 8s service, and Watts plans to sign content distributors, integrators and Web hosts as partners. However, he says he is not in "full-bore recruitment mode" because building a channel takes time.

For angel-funded Ipedo, plans are to seek partners for its directory-caching software, which focuses on rapid delivery of user profiles to portals, ASPs and B2B exchanges.

Ipedos cache is the first of several products the company plans to develop to make Internet and wireless applications easier to use. The cache is written in Java and connects to directories through LDAP version 3. Ipedo soon expects its first venture round of funding.

Startups are seeing the light. Now, they have to execute on alliances.