Summary:

For Dalton Caldwell, he’s seen all sides of Silicon Valley at this point, but it’s possibly his current startup that is his most audacious — App.net is an experiment in seeing if users will pay for a network instead of having their data sold to advertisers.

Dalton Caldwell

Sometimes it’s about being in the right place at the right time. And for entrepreneur Dalton Caldwell, he might have finally hit that place.

Caldwell, 32, is now onto his fourth startup — the would-be Twitter alternative known as App.net. Each of his previous ventures ended with a pretty loud thud: the music-sharing site Imeem wound up in a tangle of lawsuits with the record industry; the photo-sharing site PicPlz had the bad luck of being pitted against one of the hottest startups of the last five years (Instagram); and his third, an app developer platform for Facebook, worked great until Facebook decided it could provide that same function all by itself.

Burned out, Caldwell was ready to give up on Silicon Valley. But this summer, he changed his mind. At the time, there was growing unrest among developers about Twitter’s decision to tighten the rules around its API, which jeopardized many of their livelihoods and seemed to be killing the ecosystem of apps that made the service great. Caldwell, fresh off his run-in with Facebook, realized there was a larger pool of anger toward the big internet companies. So in July, he turned away from his Facebook developer platform and launched App.net.

“I was like, ‘I have money in the bank, a team, and code base, so let’s do something crazy,'” he said in a recent series of interviews.

While many news organizations (including ours) initially described App.net as a “paid Twitter,” Caldwell said that while App.net was inspired by Twitter it is not trying to replicate Twitter’s model. Rather, it is intended to be the plumbing beneath a number of apps, or, as my colleague Mathew Ingram wrote, “a way of tying together multiple apps and services into a single real-time information delivery system.”

In the age of freemium models and unlimited app downloads, App.net chose to take a different path. It charges developers and users for access to the platform, under the philosophy that offering a free product turns your customer into the product — which is then sold to advertisers. Despite having no existing users on his social network, Caldwell managed to convince users to pay $50 each to back him, and he raised $500,000 to get the service started in August. Since then, Caldwell’s been embarking on what is certainly a dubious challenge, but one that’s attracted significant attention, as the issue of a free and open web versus the profit motive of big businesses remains a salient topic.

Caldwell knows that running a paid social network and infrastructure won’t be easy, but he isn’t necessarily daunted: “App.net is my earnest attempt to propose a solution for what can exist in practice.”

Learning from past ventures

imeem screenshotCaldwell’s first venture shortly after graduation from Stanford in 2002 when started as a desktop social network, but quickly turned into a music-sharing service called Imeem that allowed users to embed their favorite songs across the web. Imeem raised more than $50 million in venture funding from firms like Sequoia Capital, and Caldwell said at one point they had 26 million unique users and were the 75th largest website in the world. However, the site ran into trouble with licensing and revenue. Sequoia backed out of later funding rounds, and Imeem went through layoffs. Eventually, facing pressure and lawsuits from the major music labels, the company that had once been valued at more than $200 million sold to MySpace in November 2009 for just $1 million in cash — “essentially a fire sale,” Om Malik wrote at the time.

In 2010, Caldwell gave a now-famous speech advising founders to steer clear of music startups. While he said he understood where the record labels were coming from, having to pay licensing fees whether you’re turning a profit or not is a tough spot to be in, and basing your business on another business is inherently risky — a lesson that certainly applies to developers building on top of Twitter.

Soon after the demise of Imeem, Caldwell launched the company Mixed Media Labs and its first product PicPlz in the spring of 2010, with backing from Andreessen Horowitz. The firm backed both Caldwell and the Instagram co-founders, who were working on a micro-blogging startup called Burbn at the time. When it looked like the two companies were headed in the same direction of photo-sharing, Andreessen Horowitz  was forced to choose between the two. The firm backed Caldwell, and for the tech world, the rest was history. Instagram sold to Facebook for $1 billion in cash and stock at the time, and PicPlz closed its doors for good this summer.

Scuffles with Facebook

“We didn’t manage to line that one up,” Caldwell said. While he said he was smart to hand off the company and move on to new ventures with cash in hand, it’s also clear that starting a photo-sharing company next to the $1 billion startup fairy tale that is Instagram still weighs on him. He was quick to say that PicPlz had many of the features that Instagram had — and that he had some of them first.

Caldwell placed some of the company’s failure on his own shoulders, saying that it was too soon after Imeem to launch a new venture.

“I wasn’t ready to be right back in the middle of reading comments about what an idiot I was,” he said. “There were other points in my career where I made decisions from a point of fear, and it’s never a good thing. With PicPlz … I didn’t just embrace the press, I was still burned out from Imeem press, and I was tired of reading negative articles about myself every week, so I wasn’t mentally prepared to put myself out there for PicPlz and prepared to go full bore.”

Facebook app centerAfter his dust-up with PicPlz, Caldwell turned to building an app developer platform for Facebook — something he said was basically equivalent to Facebook’s existing App Center, but before that service launched its own. Caldwell said he checked in regularly with Facebook while he built it to make sure the giant social network was on board, and had a beta test with a quarter-million users. Then Facebook shut him down.

“The App Center was them screwing me,” he said. “We basically built App Center, and a large percentage of Facebook employees I could see in my logs were using it, and then they shipped App Center. But it was my risk to take that, if you’re willing to be that arbitrary with your developers.”

After his meeting in Menlo Park with the folks at Facebook, Caldwell penned a “Dear Mark Zuckerberg” blog post, accusing the CEO’s company of trying to acqui-hire him and shut down his app. The post sent waves through the technology world, and had real implications for Caldwell’s business. AllThingsD reported that Marc Andreessen, who was a board member at both Facebook and Mixed Media Labs, stepped down from Caldwell’s board, to be replaced by the firm’s Scott Weiss instead.

Facebook declined to comment on the incident for this story.

Going forward with App.net

Dalton Caldwell Le Web Paris App.net

Dalton Caldwell speaks at Le Web in on Dec. 4, 2012 in Paris.

Caldwell said he was just about to give up on Silicon Valley completely, but decided to try one more thing. He announced his proposal for App.net in July, and by August, he’d hit his mark for $500,000 in funding.

“Because I’ve shipped so much stuff …  I’m used to shipping something out and no one caring. It would not just occur to me to do it in a vacuum. It touched a nerve and I saw things light up. Apparently a lot of people care about this issue,” he said. “We’ve been effectively able to channel people’s own ideas and feelings into something’s that real that they can touch and see. And that it’s making people happy and they’re embracing it — that’s exciting.”

Caldwell said he knows App.net isn’t very big right now — it’s almost at 30,000 paid members — but that’s entirely by design, he argues. It couldn’t handle the traffic of Twitter right now, and it might never get there, but that’s okay. “What makes this mainstream is the quality of the software. Average people, they bought a PC because they wanted the software or the games. That’s what would make App.net powerful.”

So how can we trust that App.net won’t pull a Twitter and start cutting off developer access or selling ads? For Caldwell, the answer lies in Imeem. He said he has no interest in launching another media company that’s based on selling advertising. “This is not a media business, this is a service,” he said.

And for Caldwell himself, now that he’s now married and has become a father, he’s taking a more relaxed approach to startups.

“I was getting sick of Silicon Valley recently, and getting cynical, so it felt good to do something I believed in and see it get rewarded. It was like, ‘Let’s cut all the bullshit and do something real.’”

The future for App.net

App.net has certainly had some wins so far, earning respect from the developers of Tapbots (who built the App.net equivalent of Tweetbot, called Netbot), launching a program to reimburse developers of the most popular apps built with the API, and lowering the price of subscription after hitting 20,000 users. On Thursday the company added an API for public messaging, which hits at the heart of Caldwell’s idea — that developers could build group chat or messaging apps, which companies like Twitter are less interested in, since those messages can never really go viral or turn into advertising material. It would be hard to call App.net anything close to a mainstream hit so far, but Caldwell said he’s very pleased with that progress.

“If you’re running a free service you’d be like, ‘Hah, that’s a joke,’ but from my perspective, given that it’s a very strange experiment, I would call that extremely promising and above expectations. The point of this is that we’re optimizing for financial sustainability and for innovation. From a financial perspective, it’s looking pretty good.”

There are no guarantees that App.net will be Caldwell’s home run, and he said he understands the kind of risk he’s taking launching a paid platform with highly varied demand from users. After some initial buzz, the interest in App.net appears to have quieted down, and it might not return. But as companies like Instagram and Twitter wrestle with issues of growth and control over their users and developers, Caldwell’s more seasoned, user-friendly approach is a contrast worth looking at.

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