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.

Boston-based Nanigans offers the equivalent of a virtual auction house for advertisers bidding to get their ads on Facebook. The company is growing so quickly it can’t even be bothered to replace the two lobby chairs and some of the art left by the previous tenant. It’s taking over the rest of the floor it occupies at 60 State Street, overlooking Government Center. To get to the space, you walk past a life-size cutout of cofounder and CEO Ric Calvillo at a company Halloween party, wearing a double-breasted suit and a bear’s head and holding a Bud Light. A stack of Ikea Galant tables and some knockoff Aeron chairs are waiting to be set up. Here and there, a few overeager employees are sitting on the floor.

When I travel to the office in mid-March, Calvillo is wearing black jeans and a pullover sweater. Fit at 45, he has deep circles under his eyes—he tells me he often wakes up at 4 in the morning to start working. And yet Calvillo doesn’t have to work. His third startup, Conley Corporation, was bought by EMC in 1998. That helped him buy a place on Nantucket. His fourth company, Incipient, failed, and Calvillo could have just stopped and gone kite-surfing (he knows all the good spots in New England), “but retiring at 40 years old sounds stupid,” he says. Witnessing the early success of Zynga, founded by Calvillo’s fellow Penn alums Andrew Trader and Mark Pincus, helped convince him to develop a social game portal on Facebook. He called it Nanigans, short for shenanigans. “It’s memorable,” Calvillo says, then adds, “Google is a weird name, too, and Yahoo!”

Nanigans switched gears when Calvillo and cofounder Claude Denton found that it was hard to attract users to their games. They started developing algorithms to get more downloads, and that became the basis for their business, which now is doing more than $20 million in sales and is on track to grow exponentially. This spring, he says, it will expand its ad platform to channels beyond Facebook. Calvillo has taken on a limited amount of funding for Nanigans, less than $10 million, suggesting that the founders can control their own fate. With Facebook surging and social media still an emergent phenomenon around the globe, if his team continues to execute, Calvillo looks like he might just take his company to unicorn status.

As companies like DataXū and HubSpot shift into high gear, there’s a follow-on wave of ad- and marketing-tech companies starting out. One of them is Swoop. Based in Cambridge, Swoop puts text ads with small icons into relevant spots in online stories, almost like a combined search-and-display ad.

On a Tuesday morning in February, Ron Elwell, Swoop’s CEO, is on the 6:20 a.m. train to New York for two days of meetings, mostly with the digital-ad agencies of companies such as American Express and Starbucks. At 53, Elwell is decidedly lean, thanks to a passion for trail running and triathlons. He ran a Tough Mudder last summer—electrified water obstacle and all—after one of Swoop’s twentysomething developers said he wanted to do it. “I beat him by two hours,” he says.

When Elwell later recounted the story to colleagues, one asked, “Isn’t it supposed to be a cooperative race, where you help each other?”

Elwell grinned. “Everything I do is a competition,” he answered.

Back in New York, Elwell’s meetings with prospects are almost perfunctory; at every one, he either gets a promise for a new campaign or an agreement to try the fledgling product. Swoop has run more than 90 ad campaigns, and the results are promising. Even at lunch, Elwell gets news that one of the world’s largest consumer-goods companies has signed up for a campaign.

Entrepreneurs like to talk about disrupting markets—that is, creating a product that makes people stop using what came before. Social media famously disrupted old media: Today, Google and Facebook each make more than $3 billion from display ads. Swoop now hopes to disrupt the disruptors—to grab a chunk of that newly liberated revenue, or well enough to make it onto the radars of companies like Microsoft and Yahoo!

 

There are all kinds of ways a startup can cartwheel off the path to a billion dollars. Companies in the ad business might decide they want to buy a venture for its idea. In February, as I started reporting this story, Facebook paid $19 billion for WhatsApp, a five-year-old maker of a messaging app with minimal revenue but 450 million users. If Facebook itself had accepted any one of the multibillion-dollar offers it received in its infancy, it would have blown an opportunity—the company’s stock is now worth $150 billion.

Baker, of DataXū, wants to see his business get big. One thing in his favor is that the field of programmatic marketing is just getting started. “We’re in the second or third inning,” says Joanna O’Connell, director of research at AdExchanger, a New York publishing and research company. The ad-tech market is indeed still being defined. And while Wall Street can be fickle when it comes to new industries, HubSpot has rivals that have gone public and succeeded, which bodes well for it. Ad-tech companies like DataXū and Fiksu are still new, still really proving their business models. As long as they don’t stumble, they’re on the right path to making Wall Street happy, which means they could go public. That would put Boston back in the mix.

It’s not hard to imagine how a robust ad-tech sector would affect the region. In short, it would mean more jobs for tech’s rising stars. But it would also offer mentoring opportunities we have yet to see—highway-level guidance to grow the next generation of big-thinking entrepreneurs. Regionally, the effects could be larger. Consider the impact of Twitter’s success on San Francisco: Dozens of companies followed its lead and settled in the city; together they are slated to bring an additional $54 million in tax revenue to the city over the next 20 years.

“Buying and selling attention is the lifeblood of the Internet, and we’re automating that business. We’re like the mint behind the Internet economy,” Baker says as he takes a break from getting ready to host a LunchSpotting event for MITX—the Massachusetts Innovation & Technology Exchange, a group of business and marketing leaders in the region. “This is a big, big market and will sustain many competitors and large successful companies. They’re not from Boston yet, but that’s what’s next.”

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