The future belongs to geeks

Following Jamba’s breakthrough five years ago, high-tech businesses have been thriving on Berlin’s abundant creative talent and low living costs.

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Following Jamba’s breakthrough five years ago, high-tech businesses have been thriving on Berlin’s abundant creative talent and low living costs.

“Have it or hate it!” So goes the infamous tagline of Jamba, the company that took the world by storm in 2005 with the much-loved (and much despised) Crazy Frog ringtone, trumping Coldplay on the British charts and shaping a billion-dollar ringtone industry.

The buzz surrounding Crazy Frog attracted a passionate following that helped make Jamba one of Berlin’s highest-profile entrepreneurial successes. Many know Berlin as the “poor but sexy” capital crawling with artists, designers, musicians and DJs; less well known is the city’s steadily growing high-tech business and venture capital scene, which has been quietly fuelled by the talent and networks of places like Jamba. Although Jamba is currently downsizing in response to the economic crisis, the repercussions of what it created in Berlin cannot be ignored.

Jamba was the second Berlin-based venture launched by Cologne-born brothers Marc, Oliver and Alexander Samwer. They initially burst onto the internet scene with Alando.de, an auction house eBay purchased for $43 million in 1999 – only about six months after it was founded. Following this success, the Samwer brothers started Jamba (known in English-speaking countries as Jamster) in 2000. The company originally sent email to mobile phones, but quickly morphed into a ringtone and, later, content provider. As the company expanded quickly in multiple directions, talent was recruited from all over the world.

From Berlin, the content was marketed back to each country with its native language, pop culture references and particular sense of humour. Jamba experienced typical start-up-style growth pains in an atypical environment; it basically became an intern factory, attracting young foreigners by securing their visas without the requisite German language skills or long work histories, and by offering them the chance to network with their savvy international peers. For many, it was their first real-world work experience. Jamba became a great breeding ground: the networks and skills gained by its employees became the springboard for their next business ventures.

Eventually, Jamba grew to over 700 people and marketed to more than 35 countries from the swanky DomAquarée building in Mitte. In late 2004, VeriSign bought Jamba for about $273 million in shares and cash, almost exactly four years to the day after the Samwer brothers sold Alando.de to eBay. In September 2006, News Corporation cashed out $188 million for 51 percent of the shares; by October 2008, it had acquired full ownership for another $200 million. In only eight years, Jamba had come far from its small original starting place in Kreuzberg, on the banks of the Spree. But then again, so had Berlin.

Talent flows in

During those eight years, technical, creative and marketing talent flowed into and was nourished elsewhere in Berlin. The city already had the seeds of a great start-up culture: a greater abundance of students with math, science and computer programming talent, not to mention designers and creative types. More importantly, rents were cheap and people were willing to work for less due to the vibrancy of the city’s culture and nightlife.

According to venture capital analyst Fabian Hansmann of Founders Link, “Since the late 1990s, Berlin has been a booming destination for start-ups. Earlier waves of the new economy had Munich […] as their epicentre.” But now this centre has shifted to Berlin: “In the early days of a start-up, you are living on a shoestring budget and revenues always take longer than you expect. That is the strength of Berlin: salary levels are much lower, rents are ridiculously cheap, and even lawyers and other service companies are less expensive. At the same time, Berlin attracts great creative people, so you do not have to compromise on quality at all. Besides, you have an inspiring ecosystem: if you want to talk to people from the internet industry, most of the players are within walking distance of Mitte or Prenzlauer Berg, and there are more networking events than you will ever need.”

Not surprisingly, success breeds more success: many of the founders of high-tech or web-based businesses maintained a presence in Berlin, mentoring up-and-comers and founding additional start-ups. After VeriSign and New Corporation gobbled up Jamba’s shares, the Samwer brothers moved on to create the Founders Fund, a venture capital fund that has provided seed money for additional local start-ups (studiVZ and MyVideo are just two of many).

The Samwers’ success continues to have a large influence on the incoming talent that has made Berlin a new high-tech hub. One such talent is Zoe Adamovicz, who was born in Warsaw, grew up in Spain and France, and originally came to Berlin to write her university thesis on the new media landscape. She then worked at Jamba before founding her own mobile company, Vulevu, in February last year.

Vulevu is a mobile dating service that targets young, fast-paced singles in urban areas. It allows users to create profiles instantly locatable from a mobile interface, which saves users from having to search through website profiles.  The company recently launched its first iPhone app to great success – within days, more than 1,000 people had downloaded it (the app is currently accessible through Facebook Connect).

Adamovicz says she “naturally” fell into the start-up scene here, but that hiring good people has been one of her biggest challenges. “Berlin is full of artists – and artists are moody,” she says, adding that the city also has a lot of “spoiled German youth”. On the other hand, she admits: “Berlin is a super-special city – its history has made it into a mecca for creatives, the poor bohemia of the art and media world, but it’s still the capital of one of the world’s strongest economies. How can you not love this atmosphere?”

She still contracts a large part of her work to Poland, but is not considering moving back there any time soon. “My home is here… and Berlin’s start-up scene is very unique – it’s much less geeky than it is in the US. It’s much more design-art-media-content-oriented. I just fell in love with it. Also, the German market is a very tempting place to start a company. And, paradoxically, Berlin is a super cheap place to run it from.”

Opportunities everywhere

Gary Lin is another start-up pioneer with a link to Jamba. Lin, an American who has spent time working and living in Brazil, moved his Manhattan-based new-media advertising agency Glispa to Berlin in 2008. The company works with all the top mobile clients; establishing its headquarters here brought it closer to Jamba, its main customer, and others. Lin found other advantages to the move: “I was able to find strong partners to round out the management team. That – combined with the stage of maturity of the internet advertising market – is why we have centralised operations here in Berlin. It is a huge advantage for a globally-minded firm to leverage its experience and networks from more mature markets, and apply them to countries that are poised for strong growth.”

In Berlin, Lin sees “opportunities everywhere you look. In regards to new media and internet-based companies, we are still years away from hitting our peak.” His company, which maintains offices in New York and Sao Paulo, now manages its portfolio of international clients from its Mitte headquarters, guiding them in affiliate, mobile, display and search marketing strategies.

While Jamba cannot take credit for the ideas of innovators like Adamovicz and Lin, it has had a centripetal influence by bringing the right type of people here and creating a professional network whose effects are only now becoming visible. According to Hansmann, the local high-tech landscape is changing from pure software plays to “a lot of web communities, [although there’s] still a lot of e-commerce, and quite a few mobile companies”. Start-ups in a wide variety of fields are just beginning to flourish here; many of them are making their debuts.

One of those debuts, SoundCloud (photo), sits at the juncture of music and technology, a sweet spot in Berlin. A platform designed to remove the hassles that artists, record labels and other music professionals face in receiving, sending and distributing music, it appears – in hindsight – to have grown out of the city’s perfect cultural vortex.

Founders Alexander Ljung and Eric Wahlforss arrived from Sweden in 2007 for the sole purpose of launching their company in Berlin. They had previously spent a month in San Francisco, considering the possibility of working there, but in the end decided they wanted to stay in Europe. The two then weighed the pros and cons of London, Vienna, Barcelona and Berlin. Although neither knew any German, Wahlforss had been here in 2003 and had released music on a Berlin-based record label, so they had some contacts and a sense of the city. After a whirlwind two-week tour, they decided that Berlin was the place.

“In Berlin, there is a strong music software hacking culture,” Lyung says, “and just an overall cultural context that matched the company. Not to mention a great creative scene with lots of stuff happening… The overall living is a lot cheaper, which is especially important when you are working around the clock in the first year. And although it is a total drag that you have to run around and get stamps from all the Ämter [government agencies], we did have some great help from local business angels when it came to networking, lawyers etc.”

They set up shop in a ramshackle seven-person bedroom/office above Café Sankt Oberholz on Rosenthaler Platz. Within a few weeks, the first private beta version of SoundCloud was online and in use for the sending and receiving of music.

Ljung has noticed that business culture in Germany takes a different tack: people start out a bit gruff and then gradually warm up to their partners. But because Berlin has such a “great feeling, great people and great audio software scene”, the bureaucratic hassles, language challenges and hard business exteriors are worth it to him.

SoundCloud remains happily ensconced here in this gritty city – so much so that Ljung and Wahlforss recently turned down an attractive opportunity in London.

Geeks are happier here

While Berlin may seem to be an obvious match for a music-based company, the hightech start-up network is becoming so strong now that even fields not traditionally associated with the city are pulling in global talent.

Fabienne Serriere, co-founder of Doctr.com – an online platform for doctor-patient communication – seems at first glance like one of the least likely people to found a company here. A French citizen and fluent French speaker, she grew up in northern California. Both San Francisco and Paris are known as fertile ground for start-ups; in both cities Serriere already had the social network and the language skills that would allow her to glide through the typical bureaucratic hassles that a new company encounters.

But about five years ago, Serriere ended up as a last-minute replacement guest at a 150-person, invite-only hacker event in Berlin – and she immediately fell in love with the city. She did not know any German, but found “good and interesting people that grew up before the Wall came down; mostly old-school hackers from the East… People who had been involved with the European computer and security scene for a long time.”

At the time, she was living in France and considering moving back to the States because her “attitude did not fit in with the French culture towards women and technology”. Being a vegan, neither did her food choices. But, instead, she moved to Berlin where, three years later, she met physician Kai von Harbou at a networking mixer. The two founded Doctr.com, an online platform that uses encrypted webcam chat sessions to facilitate and increase communication between patients and doctors, and offers community-building tools for doctors who “often miss out on interdisciplinary exchanges of ideas and information sharing”.

The company will remain in Berlin, Serriere says, because “geeks are happier here. In a geek company, you want people who are generally more satisfied with their lives. Well-adjusted people who are very creative and fast coders. The geek community and quality of life here is much better than in other cities, and the programmers are super intelligent and knowledgeable, smarter than the average… In addition, the food is good and cheap – and the quality of living is great.”

Serriere says that the geek scene here has just “exploded in the last year and a half”. The world’s crumbling economies have had little impact on the Berlin start-up scene, since “it already had a crappy economy as well as really good computer science programmes at TU [the Technical University] that continue to draw students to the city”. While the old-school hackers are what originally drew her in, Serriere has also used this expanding pool of talent to build her company into a global competitor that can rival any in the cities she left behind. She, for one, is staying put.

TechCrunch, a popular San Francisco-based tech blog, noticed the trend too. It held its first-ever offline Berlin meet-up at the Jamba headquarters in June 2008. Tickets for the second TechCrunch Berlin event in June 2009 sold out within weeks. Shortly before the event, people were posting pleas for those coveted €40 tickets on berlinwebweek.de. It’s quite unusual for a business-oriented event in Berlin to charge so much – and even more remarkable to see so many people scrambling for entry passes.

Clearly, the high-tech scene is alive and flourishing: this event was sought out because it offered access to deal-making and other insider action. The networking energy and media attention highlighted by TechCrunch will only continue to increase the strength of trends that have already been set in motion. In fact, it may be that in a few years, this “poor but sexy” city will have turned into the high-tech creative hub of Germany – a place that all young, international entrepreneurs visit to connect with talent and resources not found anywhere else.

Berlin start-ups in numbers

  • On average, the number of start-ups is twice as high in Berlin as it is in the other Bundesländer. In 2008, the city boasted 39,100 start-ups, while Hamburg had only 20,200, Munich had 17,300 and Cologne had 12,400.
  • Berlin has been particularly fertile ground for web-based startups. According to www.deutsche-startups.de, in 2008 Berlin ranked number one in Germany, with a total of 128 web startups, versus 118 in Munich and 78 in Hamburg.