Boston’s Next Tech Gold Mine

The region’s newest multibillion-dollar industry is massive and invisible. It is a tech revolution that is silently and stealthily connecting companies to us in ever-more-cunning ways. And it may be the one enterprise that locks in Boston’s hegemony over tech for years to come.

Mike Baker DataXu

Mike Baker, DataXū’s cofounder, president, and CEO, inside the company’s Boston office. / Photo by Bytoan Trinh.

Unlike in decades past, when office parks along 128 hummed with startup energy, the Red and Green lines are the new corridor of the region’s tech sector. Enterprises of every size splay out from its nodes in a parade of quirky names: Swoop is off the Alewife stop; HubSpot is near the Lechmere stop, not far from the Cambridge Innovation Center, where it got its start; Localytics is at Park Street. Fiksu left the Park Street area in June 2013, after it more than doubled its number of employees, to 160, in less than a year. Nanigans is in a tower near Government Center that’s also home to eTrade’s local office, because the real estate prices in Cambridge and in the Innovation District have gone through the roof.

These companies are exploding because, around the planet, people are shifting away from desktops and over to smartphones and tablets, leaving the $500 billion global advertising industry scrambling for streamlined, effective, and bespoke ways of reaching us. To do this, companies need lightning-fast answers to a litany of questions: Of the billions of people on hundreds of thousands of sites and apps, who should see their ads, and which ads? And how much should they spend at any given moment to beat out someone else’s ad? In a word, the future of marketing and advertising is now in the hands of those who can wrangle with big data.

And that’s just part of the equation. To make complex ad-buying decisions without human intervention, the best technology needs to approximate artificial intelligence—and improve its success rate with every interaction. And the software needs to be nimble enough to crank through billions of calculations at a pace approaching the speed of light. Ultimately, all of these calculations result in a single decision: to buy an ad spot or not, at that moment, at the right price, just for you. No wasted dollars, no wasted ads. At least, that’s the general idea.

Fortunately, Boston is profoundly gifted in the artificial intelligence department. In fact, the term itself was coined by John McCarthy, a computer scientist at MIT who, along with fellow AI pioneer Marvin Minsky, cofounded MIT’s Computer Science and Artificial Intelligence Laboratory in the late ’50s. MIT remains the top-ranked university for machine learning, the branch of AI crucial to the kinds of predictions marketers need to make. MIT also fosters smart researchers with an eye toward commerce. (Professor Robert Langer, for example, had helped start 25 companies and had licensed or sublicensed his patents to more than 250 businesses as of 2012.)

MIT research served as the basis for DataXū, one of the Hub’s biggest ad-tech companies yet. It’s the company you’ve never heard of whose software is helping multinational corporations manage their ad campaigns in real-time. Currently valued at several hundred million dollars, with revenue well over $100 million in 2013, DataXū was fifth on last year’s “Inc. 5,000″ list of the fastest-growing private companies in America.

DataXū is just one of the local advertising and marketing companies racing to reach $1 billion in revenue. Of course, just getting to $100 million in revenue is a significant milestone; a billion dollars is rarer than rare, which is why venture capitalists call those companies that do “unicorns.” Even a fast-growing business typically needs 10 to 15 years to hit a billion dollars in sales. And yet that’s not out of the realm of reason for Boston’s recent startups.

If the ad-tech enterprises here can stay independent, they’re after big enough markets to become massive companies in their own right. But for that to happen, they’ll need determined leadership, patient investors, and a healthy stock market. If even one or two of these ad-tech companies succeed, they’ll break a two-decade cycle of Boston as a feeder market for larger tech companies elsewhere, making this industry the region’s next biotech. That would reshape the local real estate market, ripple through the job market, and restore some of the lost luster of the 1980s tech heyday.

 

There are many obstacles that Boston’s ad-tech ventures will need to overcome on the road to a billion. The first is that historically, our most promising companies have been bought out before they can get that big. The software company Endeca Technologies, on the verge of going public, was purchased by Oracle for $1.1 billion in 2011. ITA Software was bought by Google for $700 million the previous year. On a smaller scale, Crashlytics had no revenue when Twitter bought it for $38 million in 2013. When local businesses like these sell out, they become satellite offices to big corporations and, as a result, aren’t nurtured in the same way they’d been when they were independent. Employees jump ship, and finding new, young star power is no longer a priority. Conversely, when companies are given the opportunity to grow where they were planted, they end up training the next generation of leaders in the mysteries of running big businesses—people who eventually gain the tools to start companies, think big, and continue developing the region’s economy.

The second obstacle is that local venture capitalists put in far less, want quicker returns, and demand much more control than their Silicon Valley cohorts. Boston lacks high-profile billionaires like John Doerr, Vinod Khosla, and Michael Moritz—visionaries who have famously fueled the industry’s change the world and get rich mythos. Those three happened to be in Silicon Valley as the personal computer ascended, crushing the minicomputer companies that were the basis of the Massachusetts Miracle with Intel, Oracle, Cisco Systems, and Sun Microsystems. In turn, they funded second-generation West Coast companies, including Compaq, Netscape, Amazon, Yahoo!, Google, and Twitter.

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