Area draws more firms tied to Web; Company executives like quality of life in Baltimore region; 'The distinction factor'; Lower costs of labor, leasing an edge over other major cities

THE BALTIMORE SUN

As young brothers growing up in Baltimore, John and Scott Ferber used to dream big: One day, they mused, they'd run a great company together.

That day is here, and their year-old venture, TeknoSurf.com is on a tear, generating almost $1 million monthly in revenue and capturing the interest of venture capitalists, which recently handed the company $11.75 million for expansion.

The Ferbers' company, located in the Harborview overlooking Baltimore's Inner Harbor, helps Web sites and businesses target advertising to Web site visitors based on their interests. It is one of a growing number of companies in the Baltimore-Washington corridor attempting to ride the explosive growth of the Internet to fame and fortune -- or at least to an honest living.

The region isn't exactly Silicon Valley, ground zero for the Internet industry. But economic development experts and Web industry watchers say the region is germinating a robust business community tied to the Internet.

Executives of these companies say they prefer being based in the Baltimore region because of several factors: quality of life amenities, such as access to Chesapeake Bay and East Coast cultural and business centers, and the relative low cost of business when compared to places like San Francisco, New York, Boston and the Northern Virginia area.

TeknoSurf co-founder and President Scott Ferber estimates that leasing costs for space are two to three times lower in Baltimore than San Francisco or New York, and wages about 1 1/2 times lower.

"There's also the distinction factor," said Ferber. "If we were in Silicon Valley or Northern Virginia we might be just another company. Being headquartered in Baltimore helps us stand out from the crowd in some ways."

Sydney Rubin, founder of Baltimore-based e.magination Inc., a fast-growing Web site design and marketing firm, said the lower cost of running a business means that area shops have a price edge when dueling for customers outside the region.

E.magination, for example, has begun garnering work from customers in Philadelphia and New York because of its pricing structure for Web marketing and design services, Rubin said.

"When it comes to the Internet, it's really true that it doesn't matter where you are located. You could be in a closet," said Rubin. "What matters is the quality of your work and your pricing, and whether you are going to help improve the client's business and drive customers to their [Web] site," Rubin said.

In fact, for years the region's Web culture and business community have lived in the shadows of Northern Virginia, home to Internet service powerhouses America Online, UUNET and PSINet.

While many of the Internet companies in the Baltimore-Washington corridor, such as TeknoSurf, with its 80 employees, are small when compared to a company such as AOL, with 12,000 employees, they are adding to the region's economic diversity, notes Penny Lewandowski, executive director of the Greater Baltimore Committee's Technology Council.

Lewandowski said no one is sure how many Internet-related companies there are in the Baltimore-Washington corridor, or what economic impact they have, because the industry is still relatively nascent.

But the Milken Institute, a Santa Cruz, Calif., think-tank, found in a recent study, "America's High-Tech Economy," that the Washington-Maryland-Virginia area has emerged as one of the country's leading telecommunications and Internet hubs.

Lewandowski and other experts say local pockets of Internet-related business activity can be found in Baltimore, chiefly in Canton at the American Can Building on Boston Street and the nearby Baltimore Development Corp.'s Emerging Technology Center. Other Web-based companies can be found in the city at the InfoAge Business Center, on Charles Street in the downtown business district.

Other hubs include the University of Maryland, Baltimore County's Enterprise Technology Center near Baltimore-Washington International Airport, Hunt Valley, and the Interstate 270 high-technology corridor between Bethesda and Frederick.

Many executives of the region's Internet companies are so busy ensuring that their ventures are successful that they aren't aware of many of the other Internet companies in the area.

That isolation -- and a near-universal wish among these entrepreneurs that city, state and other economic development groups would more actively promote the region as an emerging hotbed of Internet activity -- has them yearning for what the Ferber brothers call "a sense of community."

Unlike Maryland's biotechnology industry, which has at least two business organizations that act as promotional and resource arms, the rapidly expanding Web industry is without a champion.

Lewandowski said one of her top priorities as the new director of the GBC's technology council will be to promote the emerging industry and help those companies obtain resources that might aid the growing pains.

Not all are successes

Not all of the start-ups, of course, are successes.

Daniel P. Healey, director of the state Department of Business and Economic Development's Investment Financing Group, which makes investments in Maryland-based technology start-ups, said his office is deluged with requests for financial aid from Web ventures.

But because of the intense competition of the industry and its evolving, unpredictable nature, DBED has made investments in only a few, usually ones with an unusual idea and seasoned management.

Rubin at e.magination said some companies lack business acumen.

"A lot of times I see these companies headed by 25-year-olds. They have a great idea for a Web company and the technical knowledge, but they have absolutely no business sense," he said. "You can't hope to run a company successfully if you don't know a thing about cash flow and payroll."

Others have had the business smarts to manage their growth so they not only survive but flourish. The Ferbers' recipe for success: Scott, 30, a former business development executive with Capital One Financing, has the hard-nosed business background. John, 25, is the creative mind, having tinkered with computers since he was 7 and being among the first to develop an interactive game for the Web, called "Hover Race."

Venture capitalists are taking notice of some of these companies.

Venture financing

For example, TeknoSurf's recent round of venture financing, which it plans to use to open offices in New York and San Francisco, came from New Enterprise Associates in Baltimore and Grotech Capital Group in Timonium.

And Fax2Net founder Thomas Chen has drummed up $9 million in venture funding since launching the company in 1995. That money is helping the company expand into what's known as the unified messaging business -- providing access to e-mail, voice mail and faxes through the Internet.

AmericasDoctor.com, an Owings Mills company that offers health information and live questions and answers with physicians over its Web site, is planning a $60 million initial public offering this year.

Two Web-based outfits that Wall Street has blessed with IPOs are USinternetworking Inc., a fast-growing Annapolis concern that rents business software over the Internet, and e-Net Inc., a Germantown company offering telephone calls over the Internet, which is positioning to take on Net2Phone, the nation's leader in the Internet phone niche.

One problem executives say is shared by many of the region's young Web companies is attracting and retaining workers with the programming and other technical and analytical skills that are needed to operate successfully.

That issue, said Rubin of e.magination, is "fast becoming our most frustrating problem. I'd hire two programmers tomorrow if I could find them."

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