So Xmarks, the bookmark synchronization startup is going out of business. There’s a long and illuminating post here by Todd Agulnick, CTO & Co-Founder about why despite having 2 million user and growing at the rate of 3,000 new users a day, they are folding up shop January 10th, 2011.
It’s a sad story, one you want to learn a few lessons from so you don’t one day have to write your startup’s epitaph.
What went wrong?
Market Research of One
Todd build Xmarks (then called Foxmarks) because his friend and mentor, Mitch Kapor (head then of the Mozillia Foundation, founder of Lotus 1-2-3, Silicon Valley legend), asked him to. Mitch like a lot of people back in 2006 found that there was no good way to keep your bookmarks synched between browsers and machines. Todd built it, and before long, 5,000 people were using the prototype.
Clearly they were on to something. They turned the prototype into a startup, secured VC money, started doing all the right things. Got buzz, even got a slot at the startup beauty show, DEMO. They were hot! hot! hot!
But were they, really?
The most telling quote is this: “There’s a scalable business in here somewhere,” we told ourselves, and we were determined to find it.” Off the mark as fast as possible (got to grab that first-mover advantage), Xmarks got everything right on the development side and nothing right on the find people who will pay us money after we burn all the VC bucks side.
From what I can tell, Xmarks market research – including finding out what customers would pay for the service – consisted of Mitch saying he needed it, Todd building it and nobody looking for the customers’ wallets until it was way, way too late.
Advertisers will buy eyeballs – maybe
As the story of Xmarks unrolls, Xmarks tries to find a way to cash in all those bookmarks in aggregate form they called “the corpus.” Surely, advertisers with their insatiable hunger for more eyeballs would find some form of advertising irresistible? Nope. “We spent the next year turning over every conceivable rock looking for ways to use the data in our corpus that would prove compelling to our users and revenue-generating for us,” Todd says at one point.
There’s a certain mania that hits some startups: an almost religious belief that “the advertising model” is the Holy Grail and all they have to do is pour their users into the gaping mouth of the advertising machine and riches would flow. Guess what? Not so much.
Some people are like me – I hate advertising, always have. Avoid it whenever and however I can. Advertising is increasingly exposed as what it is: a pitiful substitute for real engagement. What’s more, now that media has fragmented into hundreds of cable channels and tens of thousands of online channels, advertisers can pick and choose who to bestow their money on. Or not.
The Takeaway
I wish Todd, the Xmarks team, Mitch Kapor and all only success in all future endeavors. But learn this from their pain: There isn’t a market for a product unless people are willing to part with their cold, hard cash at some point. Make sure there is before you start believing your own press releases.

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