We received devastating news that Nahum Sharfman, founder of Shopping.com, and his wife, Nava, died in a plane crash in Greece. According to The Marker (the article is in Hebrew, here’s the translated version), Sharfman, who was a well-known entrepreneur in the Israeli tech space, perished in a plane crash on the Greek island of Korfo. The story has also been broken on Twitter. Initial reports attribute the cause of the crash to human error combined with severe weather conditions.

A successful entrepreneur, Sharfman founded Shopping.com which he brought to a successful IPO in 2004. Shopping.com was later acquired by eBay for $650 million. Earlier, Sharfman co-founded Commtouch and also brought the security technology company to an IPO in 2000. Prior to starting his own ventures, Sharfman spent 11 years working for National Semiconductor. He received a Ph.D. in High Energy Nuclear Physics from Carnegie Mellon University and M.S. and B.S. degrees in Physics from the Technion, the Israel Institute of Technology. Sharfman was also chairman of social content sharing site enips.

Our thoughts and prayers are with Nahum and Nava Sharfman’s family and friends at this time.

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Three years ago when Web 2.0 began proliferating, Israeli startups used eSnips as the poster child for their case that a successful social network could be founded in Israel.  Based on the criteria in those days, eSnips was in fact delivering: It was able to convince top tier VCs to buy into an advertising-based business model, it leveraged user-generated content (the main activity is sharing personal media), used free storage as a hook, traffic was rising steadily, and it became a press darling domestically and internationally. As we say in Israel, “It was all honey”.

Now fast forward to Q4 2008. A shell of its previous self, eSnips is now a startup train wreck: Founders divorced and dismissed, threatened by litigation courtesy of a record label and, with no possibility for further funding, the company was unloaded for approximately $750,000 to the Logia Group.

In the past three months I have spoken to a number of sources close to the company and have managed to reconstruct the circumstances that brought the company from its zenith, to its nadir.

The fall of eSnips is a story of heartache that is intertwined, unfortunately, with the destruction of a marriage.  All startup co-founders feel like married couples from time to time, but when they actually are married it can add to the level of stress and the complexity of running the business.   As I relate the events that led to the company’s current situation below, I’ll do my best to stick to the business issues at hand.  But the line between what is business and what is personal can sometimes get messy, especially with startups.

Episode I: Heartbreak Hotel

One of the worst kept, but most respected secrets in the Israeli startup scene was the marriage that fell apart between eSnip’s CEO Yael Elish and her CTO husband Alon. When Yael left the company, the local press didn’t publicize the real story. We also covered the drama, noting the explanation given for her departure was “personal reasons”.

The trouble at eSnips began around October 2007 when Yael began to spend more and more time out of the office. Employees perceived this as having to do with activities related to a second round of financing. By December it became evident that this had more to do with a deterioration in the couple’s relationship. (I have tried to contact her for comment and will update the post if she responds).

The meltdown had the greatest impact on Alon, who as one source close to the company put it “was clearly unable to work after the mid-December announcement [with media coverage alluding to the personal crisis] and some days came in, others not.” An awkward situation ensued and confusion among employees grew in regards to the company’s future. This had a clear and immediate effect on the company’s day-to-day operation. As the same source put it “All work just stopped.” Technologically no one picked up the slack and no new development took place. eSnips entered a maintenance “steady state”.

Between October and December the company re-ignited its fundraising activities to correspond with the release of its “Social DNA” feature. I happened to have attended the release party and clearly remember a very odd vibe on the part of the employees. In retrospect, I can best describe it as the collective anticipation of watching a house of cards about to fall upon itself.

As word began leaking out, VCs interested in participating in the Series B funding backed off as it became clear that Yael would be walking away. In mid-December 5 to 7 employees were let go and Yael notified the remaining employees that she was leaving eSnips. The company then embarked on an unsuccessful hunt for an external CEO, interviewing candidates from both the US and Israel.

In mid-January 2008 another group of employees were let go, leaving eSnips with a couple of engineers and a content manager in place. It was around February that Dr. Nahum Sharfman, the company’s Chairman (formerly one of the founders of Shopping.com), stepped in as CEO, cutting loose both Yael and Alon (who were still full time employees). The goal was now to cut losses and sell the company.

Episode II: Disco Inferno

In a fascinating—and until now unknown—twist in the eSnips story, the personal drama may have eclipsed a major business threat. Record label EMI may in fact have played a considerable role in the company’s demise.

While eSnips was taking measures to police content uploaded by users, certain copyrighted material ended up online. In mid-October 2007 EMI called the company on it. This could not have come as a real surprise because eSnips knew for well over a year that users were sharing a great amount of copyrighted music with each other through the service. It was right around this time that it began cracking down on the behavior by using Audible Magic’s music fingerprinting technology. As a consequence, doing so eventually had a negative impact on the site’s traffic. EMI though remained steadfast in vocalizing its discontent.

This is where things get a bit murky… I was unable to ascertain whether EMI actually sued or was just aggressively threatening the company. I was however able to learn that somewhere in the area of a quarter to a third of the final purchase price of the company was paid to EMI. This to me indicates that EMI’s role in eSnip’s implosion was not a minor one.

Episode III: A New Hope

It took nearly nine months for the investors to unload eSnips to the Logia Group which took it over on November 1. According to the individuals I spoke with, the purchase price did not exceed $750K. Now subtract a quarter to one third piped to EMI to settle its beef with the company. This leaves the investors recouping around $500K of the $5.5M poured into eSnips.

The Logia Group’s purchase of eSnips came out of left field as it is a collection of companies that mostly have to do with mobile content (see image below). If for no other stakeholder, the purchase could at least spell some new hope for eSnip’s users.  ComScore estimates the site still attracts 5.7 million unique visitors a month worldwide (as of November, 2008), down from a peak of 9.1 million last March.

I spoke to Itai Aaronsohn who will head the new eSnips about what Logia has in store for it. He communicated to me that eSnip’s basic functionality will not change. It will remain a free service with media sharing as its foundation, but will see new mobile and content layers added—both of which are Logia’s expertise.

In the short term users should expect an enrichment in the video and music departments, as well as the addition of casual games. Premium content and possibly original production will be added down the line. Users should also expect the addition of a mobile experience where access to personal media will be provided from handsets.

Epilogue:

Clearly, all was far from honey at eSnips.

There were fundamental flaws in the role that UGC, copyrighted material and advertising revenue held in the company’s overall strategy.

Then of course there was the personal drama. Some investors are principally against investing in husband-and-wife teams. eSnips sure strengthens the case. However, one can always use contrary examples such as Caterina Fake and Stewart Butterfield of Flickr, Ben and Mena Trott of SixApart, or Ruth Parasol and Russ DeLeon of PartyGaming. It doesn’t always have to go awry.

One thing cannot be argued though… Many of eSnips’ users are loyal and have stuck around through the company’s rollercoaster ride. For a great while they received the short end of the stick with no new features and little attention. Logia promises this will change, and that is as much of a silver lining as one could hope for in an otherwise sad story.

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The funding, inevitably, fell apart. The company tried to regroup under chairman Nahum Sharfman, who took over as acting CEO. But they eventually went the layoff route, letting most of the 16 or so employees go.

It’s not clear if the company will fold or find a way to continue operations. But storm clouds have massed over what was once a promising startup.

To date eSnips has raised $5 million, mostly from Gemini Israel Funds and Greylock. We’re putting them on DeadPool watch.

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Looks like tonight’s theme is social discovery. Israel-based eSnips, a media-centric social network we reviewed over a year ago, is releasing a new feature called “Social DNA” meant to help you discover people similar to yourself.

The idea’s simple and already executed in one form or another by most online dating services. Users fill out quick and “fun” quizzes about a variety of topics. They also list their musical, literary, cinematic, and dietary preferences on the site.

Social DNA then takes these two sources of input and compiles percentages meant to reflect how similar you are to others on different topics. You’ll find out that you and Sally are 64% alike in political beliefs but only 8% alike in musical tastes, etc. The site will also tell you who you match most closely in a particular community or group of friends.

Social DNA is cute enough but seems to confuse the purpose of eSnips even more than it is already confused (is it an online storage service? a social network? a promotional tool?). Plus, the feature doesn’t add much substance; I don’t expect many people will actually get to know each other after discovering that their “social genes” match up well. But who knows; maybe eSnips’ reported four million users will really dig Social DNA.

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Editor’s Note: This post was written by guest contributor Steve Poland, whose blog Techquila Shots brainstorms web start-up ideas.

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This is a company that takes a remarkably simple approach to serving consumer producers. They monetize storage beyond 1 GB of media and run AdSense on most pages. Purchasing items on eSnips currently goes on through PayPal. I wouldn’t be surprised if this new funding is used in part to develop or purchase an ecommerce tool that eSnips can generate revenue with. They certainly have built up a vibrant user community in a short period of time.

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The company reports that paintings and photographs are the most popular items sold on the site, followed by jewelry, “other items,” and crafts. Music, video and games are also sold on the site. Users get 1 GB of free storage with their accounts. Revenue is generated by selling extra storage and through Adsense. Any item can also be displayed off site with an HTML widget. Items are uploaded with a Windows-only tool.

ESnips is an unassuming site that seems to just plain work for people. The company is currently hosting an “open studio week” highlighting selected artists who share their work on the site. I guess it’s all just further proof that the Web 2.0 world of user generated content, data portability and social networking doesn’t have to be flashy to get peoples’ attention.

This seems like the kind of thing that would have flopped a decade ago, but that could really work now that the idea of sharing content online has become much more mainstream. Has it become mainstream enough to support business models like the one at eSnips? We shall see.

It’s hard to categorize eSnips. We looked at it as part of our review of online storage providers – and although eSnips does provide 1 GB of free storage for users, they clearly are up to something else as well.

The core idea is to allow users to upload media files of any type – photos, videos, office documents, whatever – tag them, and either keep them private, share with other or make them public. But eSnips is also allowing bookmarking of web content, from a whole page to a line or paragraph. Others can comment on each piece of media or content as well, and rate a user created page. RSS feeds are available for everything.

Given the social aspects of the service, eSnips is really a content-centric social network.

eSnips also offers a client uploader for file transfers, and a toolbar for easier bookmarking. Both only work on Windows machines at this time, however.

I like combining media and other files with bookmarked content, and although I’m not sure if eSnips in its current form will stand out enough from the crowd, I do think they are on to something interesting. If virality kicks in from sharing, they could have a winner. eSnips is free, and they will charge for storage above 1 GB and other services.

The online storage market is evolving fast. In the past, users could expect no more than a simple service where files could be slowly uploaded and downloaded from a mapped virtual drive or a simple web based interface. Little competition (and the bursting of the bubble) led to very high prices for a minimal amount of storage.

Over the last year a slew of new services have launched (some are launching in February) with serious web 2.0 features, reasonable pricing (including free unlimited storage) and, in at least one case (OmniDrive), the ability to read/write directly to the file with local applications like Office, on the remote server. This last feature speeds the process of writing to files significantly by skipping the requirement to download the file to the hard drive first.

The Online Storage Gang
We looked at a total of thirteen companies. They are: AllMyData, Box.net, eSnips, Freepository, (the unfortunately named) GoDaddy, iStorage, Mofile, Mozy, Omnidrive, Openomy, Streamload, Strongspace and Xdrive.

Another service, Zingee, has yet to launch and may also (or may not) have a compelling offering.

Of the thirteen companies that we researched for this post, three really stand out. Australia-based OmniDrive (unfunded but not for long) is the clear leader in features. Box.net and Streamload are also very good choices.

The services can roughly be broken down into storage-centric and sharing-centric. Some services, like Mozy and the unfortunately named Godaddy, are centered on storage only. GoDaddy offers online file backup with very basic uploading and downloading features – effectively a remote network drive. They are a bare-bones service with a fairly attractive price point ($20/year for 2 GB). You will not find sharing or other advanced features here.

Other services offer storage but really focus on sharing files. There are a number of options here, but the best (OmniDrive, Box.net and Streamload) offer full private and public sharing. In addition, I really like the way Box.net approaches group folders, where any number of people can have read/write priviliges. Omnidrive is close to launching this feature as well.

Web 2.0 Features
Most of the new players (possibly with the exception of Mozy) are laser focused on key web 2.0 features. The best have multiple folders (private, shared, group, public), RSS feeds for each folder, etc. A couple, including Omnidrive, have also built features that allow subscriptions for RSS enclosures (such as podcasts), so that those files are stored in the cloud instead of your hard drive.

And OmniDrive has one key feature that no one else matches: full read/write functionality on the file, in the cloud. Open a file from your Omnidrive, edit it and write it back to Omnidrive without ever downloading a local copy. Once they release their API, I imagine many, many services will mash the Omnidrive storage service into their applications. It is just too compelling not to.

AllMyData, unique among the group, is a full peer-to-peer solution with “grid storage”. This means you give up storage on your hard drive for other users, and you get theirs in return. Putting aside the fact that giving up storage is exactly what users don’t want when looking for a solution, the fact that others’ computers must be powerd up and online for you to be able to access your files is a serious service limitation.

Pricing
Pricing is all over the place, although I expect it to settle down as competition drives some of these companies out of the market.

Streamload is the most aggresive on pricing – offering a full 25 GB free to every user.

The obvious way to market these products, in my opinion, is to boldly offer unlimited storage for a nominal sum. Costs can be covered via a one-time sign up fee and through charges on download bandwidth (once I need the files, I’m willing to pay to get them).

I firmly believe that online storage should, and will, be packaged with new computers and applications like Windows. The amount of unprotected but hugely important media content out there on hard drives (music, movies, home movies, pictures), is growing every day. People need somewhere to back this data up for a reasonable fee, and it seems to me that Dell and others should package this service with the PC. All initial software would be auto stored, and users would have the option to continuously syncronize their hard drive with the virtual drive.

And while this business has thin margins, this is a multi-billion dollar per year revenue opportunity.

The Chart
The information above simply highlights the much more detailed information in the table linked to the left.

We were not able to speak to every company directly and the information available on websites is usually incomplete or hard to find. Therefore, we’ll be updating this table as more and better data comes in. Also, I’m sure I’ve left out any number of competitors in this space, so I will be updating the list of companies as well.

For the full feature comparison table, see here.

Research by Adam Bouskila
Research for this post was conducted by Adam Bouskila, a 17 year old genius who lives in Vancouver, Canada. I cannot thank Adam enough for his hard work, and I hope to work with him again on future posts.

Update: It’s clear to me from comments and emails that this space is exploding, and that I missed a lot of companies and features. I also hadn’t realized Fred Wilson posted on this subject last December, but he has an excellent post here.