In search of: Startups that could upend Google and Microsoft

Earlier this week at one of Mary Jo Foley's talk before the New York Software Industry Association one of the folks in the audience posed a great question. The gist: The Google vs. Microsoft online advertising war resembles Sears vs. Montgomery Ward years ago. The punch line: While Sears and Montgomery Ward were duking it out Wal-Mart stole their collective lunches. What company could sneak up on both Google and Microsoft to render their battle moot?

Talk about stumped. No one had an answer. Someone sheepishly said Amazon, but it's not like the e-tailing giant is exactly an off-radar type of company. I suppose the fact no one had a decent answer wasn't that surprising. If we had the answers we'd be out funding the thing, buying stock or trying to get a job there. Meanwhile, these wars take years to unfold and it's very early in this Google-Microsoft show. The scrum over Yahoo could only be a prelude to bigger things to come.

But the question about whom or what could sneak up on both Google and Microsoft is worth asking (I'll gladly take a few write-in candidates if you have them). In any case sneaking up on Google and Microsoft won't be easy. Both share a healthy dose of paranoia about becoming irrelevant.

That question asked earlier this week was reinforced by a report from ThinkPanmure, which used to be ThinkEquity. William Morrison, an analyst at ThinkPanmure, recapped its ThinkTomorrow private company and venture capital summit. Morrison's big conclusion:

We continue to believe that, with the notable exceptions of Google, Bankrate, eHealth, and comScore, private companies are powering most of the growth and innovation in the Internet media market, solidifying our fundamentally bearish stance on the majority of publicly-traded Web 1.0 advertising models. A quarter of the companies that presented at TTT are generating revenue in the $50-100M range and growing 25-50% Y/Y, with several others in the $10-20M range and growing 100-200% Y/Y.

Looking at the top trafficked companies on the Internet could bring you to a similar conclusion. Companies like Facebook, LinkedIn, Glam Media and are sprinkled throughout the top 50. Sure, public entities--Google, Yahoo, media conglomerates (Time Warner, CBS, News Corp.) and such--are also over the rankings, but you can see what Morrison is getting at.

Morrison's report recapped presentations by Boxee, BzzAgent, CelebTV, Cobalt Group, ContextWeb, Education.com, Everyzing, Friendster, Glam Media, Imeem, LinkedIn, NebuAd, OpenX, ReachLocal, Trulia, Vibrant Media, VideoEgg, and Whitepages.com.

A few of them struck me as very interesting. For instance, Morrison said Boxee agnostic digital living room software had a user interface that matched Apple TV without the iTunes handcuffs. BzzAgent is a word of mouth marketing specialist that caught my attention given that Twitter, Facebook and other sites could facilitate this movement. ContextWeb was notable because it runs an ADSDAQ ad exchange.

In addition, NebuAd, a next generation behavioral targeting company was interesting due to its money-making potential and outright creepiness--the company "leverages user data culled from deep packet inspection technology installed within ISP data networks," according to Morrison. NebuAd basically monitors your surfing habits and pitches you contextual ads. It's a cookie-free approach, but does include client-side software to track you. Bottom line: NebuAd wouldn't need fancy algorithms to guess what you're doing because it would have the hard facts.

Are any of these companies going to squash Google or Microsoft tomorrow? Not a chance. But they are worth watching. History is littered with upstarts that stormed the field while no one was watching. It'll happen again.

Update:  NebuAd disputes the claim that it uses client-side software and adds that its model depends on cookies. Here's the official response:

NebuAd does not collect and use personally identifiable information. Our advertising systems do not store IP addresses, URLs, or search teams associated with a specific individual. Additionally, NebuAd does not install applications on user machines. We require our ISP partners to notify their subscribers before commencing our service, and they may opt-out at any time. Once individuals opt out, NebuAd immediately recognizes their opt-out status.

I'll follow up in a future post.