Deal Radar 2010: JanRain, Portland, Oregon

JanRain helps organizations to succeed on the authenticated Web with its user management platform. A key component of the platform is RPX, an enterprise-class solution that enables a website to expedite the registration and log-in processes with a user’s third-party account, import user profile information and address books, and make it easy to publish website activity back to multiple social networks.

Portland-based JanRain was founded in 2005 by Larry Drebes, the current VP of engineering. Drebes was a co-founder of Four11 Corporation, whose RocketMail product became YahooMail after being acquired by Yahoo! in 1997. Drebes later founded JanRain and became involved with the nascent OpenID community, and JanRain engineers helped to create many solutions based on the technology. In fact, JanRain was recently cited by Googleas enabling the implementation of OpenID for many of the companies that launched on the Google Apps Marketplace.

The current CEO, Brian Kissel, was previously the VP of product management at NetAngels, which after being acquired by Firefly Networks became the foundation of Microsoft’s Passport user-managed identity platform. He is the chairman of the board of the OpenID Foundation.

The JanRain user management platform comprises three key components that can work together or separately. The flagship product, RPX, was the industry’s first solution to enable a website to offer third-party sign-in from social network platforms and from identity providers such as Google or Yahoo!

Other components of the platform enable companies to solve two significant challenges: make it easy for an employee or customer to access multiple affiliated websites without having to re-authenticate at each site, and have a database in the cloud to store rich user profile data (demographics, friends, address books, photos, personal interests, etc.) that is transmitted to the site when a user logs in with either a third-party identity provider or site-specific user name and password.

JanRain’s initial offering was MyOpenID, a standalone provider for both individuals and businesses to establish an OpenID with secure multi-factor authentication. Today, more than half a million OpenIDs have been issued through MyOpenID, where it is especially strong with early adopters and innovators in the space. In 2008, the company released RPX to take advantage of the evolution in OpenID acceptance. JanRain said that at that point it made sense to switch focus from a B2C to a B2B solution. JanRain gained traction by forming partnerships with Internet platform companies, leveraging endorsements and referrals from the major identity providers, and winning key brand accounts such as Universal Music Group.

Initially, there were no direct competitors but there was strong support from identity providers. Today, competition includes internally built solutions, single-vendor solutions (Facebook, Google, Yahoo!, etc.), and Gigya. Competitively, JanRain and Gigya have evolved quite differently. Gigya began by aggregating the content embed APIs for all the major platforms. As the next generation APIs like Facebook Connect began to emerge, the company recognized the opportunity to play an aggregator role for APIs in another non-standardized space. Current clients include ABC, CBS, Turner, Intuit, Reuters, and Time. JanRain has its roots in OpenID, an open source technology that lets you use your existing presence on the Web as a form of identity. It was designed to solve real-world problems around single sign-on.

JanRain believes that OpenID is the future of Web authentication and that companies that use RPX enjoy higher registration rates, increased brand awareness, and qualified referral traffic. The end user benefits from a faster log-in and a more customized experience.

With over 70 million active websites, approximately 10% of which offer login or registration, the total market for JanRain is 7 million websites, although the company knows this number will grow. Conservatively assuming 30% of this market will purchase a third-party identity solution, JanRain’s addressable market is approximately 3 million websites. RPX is currently deployed on over 200,000 websites.

The company’s SaaS business model includes both free and paid subscription pricing based on the number of registered unique users over the course of a year.

The top targets are websites that require log-in or registration to have a more valuable interaction. Key verticals and example customers are: entertainment (MTV, Universal Music Group, EMI, Qype, Habbo); news and media (Fox News, NPR, Tribune Interactive, Meredith Publishing, National Geographic, Associated Northcliff Digital); and retail (Kodak, Diesel, Sears, savings.com, redplum, Famous Footwear).

Another key target is technology platforms. Social networking/community, customer feedback, and commenting platforms have integrated JanRain’s RPX to offer third-party authentication (PayPal, User Voice, GetSatisfaction, KickApps, Viewpoints, Wetpaint). Another emerging market is federal, state, and local governments. The federal government recently announced its plans to adopt OpenID, and pilots are underway with several agencies. The OpenID Foundation has partnered with the Information Card Foundation to form the Open Identity Exchange to certify identity providers for federal government applications.

As a SaaS company, JanRain recognizes subscription bookings over the term of the subscription, which is generally 12 months. In 2009, the company generated $1 million in bookings and recognized $487,000 in revenue. It is on track to be profitable by the end of 2011.

JanRain was initially funded by Drebes. In August 2009, the company closed a seed round with DFJ Frontier and in December 2009, it completed a $3.25 million Series A led by DFJ Frontier with participation from RPM Ventures and Anthem Venture Partners. Current financing may allow the company to achieve profitability, but JanRain anticipates that it may raise an additional round of expansion capital in late 2010 or early 2011. The TAM for this company appears rather small to me, because it already services 200,000 of its 3 million prospects, so even if it succeeds in penetrating the entire target market, it would still only be about a ~$15 million a year company. While that’s a nice business, it is certainly not venture scale, and the fact that the company has venture money seems odd.

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This segment is a part in the series : Deal Radar 2010