Internet Appliance Network Radically Restructures

Dropping media, marketing and advertising functions to concentrate on developing software and technology, Silicon Alley-based Internet Appliance Network joins the ranks of start-up companies dramatically cutting staff — letting go around 44 percent of its workforce and nearly shutting down operations in New York.

“What we have done,” said Audrey Parma, IAN’s chief executive officer, who joined the company in late July, “is really focus on our core competency, as a provider of technology.”

The restructuring means the end for around 35 employees in New York, in sales, administrative, customer service, and marketing roles. The company will keep its technology operation in Foxboro, Mass., and a Web-based application operation in California.

The company, which was founded in 1999 and incubated within high-profile venture capital firm Flatiron Partners, aimed to help clients build their brands by providing them with so-called Internet appliances — non-computer machines that accessed the Net. The clients, in turn, would give these devices to their customers, allowing them to build a content and commerce relationship with those consumers and building their brands. Internet Appliance Network also intended to sell banner advertising that would run on these devices.

That was the idea, and it was so far rolled out to one big client — the Virgin Entertainment Group. But, with the Internet appliance market failing to reach critical mass and the funding environment drying up, the company is now choosing to focus on its technology and enabling software.

“The funding environment has changed, and the market right now is really skittish, especially about anything that touches the consumer, that is advertising-based, and about hardware,” said Seth Goldstein, entrepreneur in residence at Flatiron Partners, who shepherded the Internet Appliance Network. “I think it’s only natural that companies at that intersection should be effected.”

Earlier this week, another Flatiron investment, Scout Electromedia, shuttered its operations only two months after its launch. The company was to offer advertising-supported lifestyle news on a proprietary wireless hardware device. The service, called MODO, also fell victim to investor skittishness. Idealab, which recently pulled back its planned IPO, was the lead investor in Scout.

As for Internet Appliance Network — its New York office will be shut down as of November 1, but employees are already packing up their things and moving on after getting the news last week.

“It’s not easy. I don’t think we’re alone,” said Parma. “I should probably get together with a lot of other CEOs right now and we can all have a beer and cry.”

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