New England was a tough place to get funded in the first quarter of 2008. Venture capitalists in the region cut Q1 spending by 27% from a year ago. The retreat by the New Englander investors was much sharper than by their non-New England colleagues who cut their spending just 2%. As a result, New England’s share of venture capital funding declined from 13% of total US funding in Q1 2007 to 10% in the first quarter of this year.

Do the cutbacks anticipate a tougher economic slowdown in the Northeast? Have New England entrepreneurs suddenly become less clever? Or is it just a dose of Yankee conservatism? Whatever the reason, the tighter purse strings won’t help New England innovators catch their rivals elsewhere.

Prof. Ross Gittel has published an article on the subject called “Demographic Demise” in the New England Journal of Higher Education. The University of New Hampshire professor shows that the New England states held six of the bottom ten rankings in young adult population declines (population ages 25-34) over the years 1990 to 2004. Gittel notes that this young cohort shrank by more than one-fifth in each of the New England states. His data show that while more than 6% of US full-time students go to college in New England, a decade later only 4.5% of 25-34 year-olds live here. He cites a 2003 study by the Boston Chamber of Commerce and the Boston Consulting Group which determined that half of the area’s college graduates get their diplomas and then leave the area – believing the attractions and opportunities were greater elsewhere.

The shrinking New England share data become really painful when we look at two high profile examples of lost opportunities. In 1974 amid rising oil prices and the Vietnam War, Bill Gates left New England to start Microsoft. Thirty years later, in 2004, with the Internet struggling with its recession, Mark Zuckerberg left New England, got angel financing for Facebook in California and founded his company in Palo Alto. Today the web sites of these two New England collegians account for 4% of all time spent online in the US, with this share more than doubling in the last year and growing at rate of 7% per month. Now, Microsoft employs more than 47,000 people in the US and Facebook plans to double its number of employees to 700 this year.

Ouch!

The Community Next conference in San Jose, CA this last weekend resembled the mosh pit at a rock concert. It featured performances by the twenty year-old rock stars and a few older ones who have developed successful applications on the new Facebook applications platform. Business cards glowed with approval like cell phone lights at a concert. Venture capital promises were passed around like illicit drugs. The performers were mobbed by their fans.

On May 29th, Facebook opened its platform to application builders. Now four months later, 5,000 applications were reported at the conference. Compete data show that Facebook activity grew 32% from May to August, 2007, with more than a third of the growth coming from the new applications. Zach Allia, a recent graduate from Northeastern University in Boston is one of the stars. His Free Gifts application has grown from start up to 7 million Facebook users in the last 120 days. Cool!

Sage old rock star, Mitchell Kapur headlined Saturday’s presentations. He advised the young developers of the unavoidable tensions between their applications and the platforms they are developing upon. He counseled:

• Platform owners have the power
• Innovations migrate into the platform
• Some platform owners want to control the whole system
• Platform owners need their applications, but they are destined to absorb the best of them into the platform.

Mitch should know. Twenty years ago, his Lotus 1-2-3 and Lotus Notes performed brilliantly, but eventually succumbed to platform-provider Microsoft. I remember. I was there.

One of the hot young performers listening to Mitch was Craig Ulliott. In 2007, he launched Where I’ve Been which has quickly become Facebook’s most popular travel application. Craig is now pursuing the transformation of his Facebook application into a successful online travel company with its own web service (www.whereivebeen.com) and additional applications on MySpace and other social networks, beyond just Facebook.

Rock on!

Well, folks, on the magic date of 6/6/06, an article in the Wall Street Journal was published about how Tesco PLC, Britain’s largest retailer has signed up 12 million people to participate in their clubcard membership. But that’s not amazing. The amazing part of this deal (and the devil didn’t have a hand in this) was that smart consumers began to see the value in providing a little personal information in exchange for discounts and personalized offers from the retailer Tesco. We’re not talking about consumers giving out their social security or credit card information in exchange for a $1 off coupon on a magazine subscription; we’re talking your average demographics - age, gender and income. Tesco asked for this information to enable them to better connect with their customers and make for a better shopping experience. Because Tesco took that leap of faith and truly began to connect with their customers, Tesco’s market share in groceries has grown to almost 31%!! That’s nearly double the share of their closest competitor, Wal-Mart’s Asda chain.

MySpace and Facebook are two huge social networking sites (in April, they were the 5th and 76th most visited websites respectively), in which when you are registering they ask that you provide some personal information. They do this in order for you to meet up with new friends that share the same interests, hobbies, schools, gaming, foods, movies, entertainment and everything else under the sun. As Tesco, MySpace and Facebook have demonstrated, sharing information is a matter of personal choice. If there is personal value and trust in a product, then people will share information in order to get something in return - they will “give to receive.” Because of the strides that these companies have made in keeping their consumers engaged and involved, we can truly say that these Giants will continue to crush their competitors and leave a smile on their customer’s faces.