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- Hold The Phone — How The Future Of Web Advertising Is Linked To The Call
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| Hold The Phone — How The Future Of Web Advertising Is Linked To The Call Posted: 13 May 2012 08:41 AM PDT  We’re all now familiar with how adwords campaigns on Google work. You buy keywords commonly used in search terms, such as “plumber in X town”, and send people to a response mechanism, usually a web site. But increasingly that response mechanism is not a just a web site but a phone number as well – sometimes it’s even just a phone number. But these days it’s rarely an ordinary number – it’s usually a ‘smart number’ that performs certain kinds of actions and sends data, just like browser calls a web page and sends data from that page. These smart numbers can be made to grab an RSS feed, play a sound file, make the caller fill out a form with their voice – just about anything. Increasingly we are seeing tech startups address what you do with that phone call and the data and analytics that can be pulled from it, just like on the Web. While Google and Facebook look at this area with their pet own projects, startups have appeared on the market to address this, such as AdInsight, Tropo, Twilio and Iovox, among others. And the news that AdInsight, raised $2.6m from Eden ventures recently threw into sharp relief how competitive this market is likely to become. What is at stake is a billion dollar market of phone calls, which the majority of a time lead to real business being booked – far more than that generated by web advertising. So imagine that you sent Web users to a phone line, but when they called it the line was dead resulting in an obvious loss of business? You’d be pretty annoyed. TechCrunch has uncovered just such an example of this happening, with shocking results. We understand that a recent UK Google AdWords campaign involved a “several million pound” AdWord campaign spend where over 80% of the phone numbers associated with the campaign were linked to dead phone lines. The problem was spotted for some time and in the end tool two weeks to fix – and though Google wasn’t to blame, the uncovering of this massive failure put a UK startup, Iovox, into the spotlight of a potential bidding war between Google, Microsoft’s Bing and telco giant BT. Here’s how the scandal of the £4 million campaign that virtually failed went down. A company connected their Google Adwords campaign to a voice-response mechanism. Customers would call the numbers advertised and be put through to a call centre. To that end a service provider – which we understand to be a major continental European telco – was brought in to provide the phone lines for the AdWords campaign. They employed an off the shelf PBX system to terminate the calls. But our sources say the telco only put in a handful of phone lines, around 8, – and only one actually worked. The result was that if any call came in on any of those lines, the rest would simply be sent to dead air. Although the startup won’t comment on the incident, TechCrunch understands that Iovox was brought in to assess the efficacy of the campaign, and it uncovered that only 19 percent of attempted calls were actually being picked up. The client went back to Google, and passed on Iovox’s findings. The client eventually told Google the fault lay with the telco. We understand Google later called for a meeting with Iovox. But this incident has highlighted a startling conclusion. Google itself literally has no way of tracking the efficacy of adwords campaigns associated with phone numbers. This is big problem for the future and Google knows it. And we understand from sources that an internal pilot to create such a platform has been dumped after failing to work. THE FUTURE IS STILL IN THE PHONE CALL As much as we think the old world of phone numbers may one day disappear, and we’ll eventually be calling each other through Facebook or something, the practical reality is that they won’t. So the interface between the Web and the PSTN phone network is not going away. Indeed, the relationship is likely to get richer and deeper, and this is being reflected in how online ads are responded to using phone numbers. So, someone calls a normal phone number that terminates on a PSTN switch. That hits a flowchart on a server and based on an API or time of day they perform some action. That platform can then send the called to a call centre, or start an IVR process, more or less anything. It could be sending the call, for instance, to Livebookings so that the caller can book a table. The important thing to remember here is that you can also attach meta data to the call, so it’s almost asa if an individual phone number becomes a web page not a dumb bunch of digits. Different companies use this method for different things like tracking whether those calls are answered, how long they stay on the call, at what point they drop off etc. PLUMBERS Now, when a plumber who advertises though a phone number or other platforms like Google, Yellow Pages, newspapers, or flyers, or whatever, he or she just wants a pie chart which says which platform is doing best. Measuring that online is slightly easier – email signups for instance. But plumbers and most other SMEs want phone calls, because that leads to real business. And they don’t want to have to be tech savvy – they just want data which tells them whether the number on their van, business card, web site or whatever gets them their most business and then they want to double down on the best option. This is where a company like Iovox or Adinsight comes in. They provide these individualised numbers to any business. But the problem is that even though we are increasingly using smartphones, numbers are still dominant and still dumb. And that won’t be fixed any time soon. THE LINK TO ADWORDS But, as I said, there is no ‘last mile’ solution built into Google to track marketing efficacy between phone numbers and Adwords. Noone works with Google to provide phone numbers. So companies are running ad campaigns on Google and getting phone numbers from other third party providers. Often these numbers are found in newspapers. Since people calling these numbers usually declare that it’s an ad they saw in a newspaper an advertiser will use a keyword to trigger data capture. Thus, one customer of these third party phone number providers has 6,000 keywords. Yes, 6,000. Some can be expensive, like “travel to the UK”. What the number providers do is take a pool of those keywords and assign a phone number to that pool, or they can assign individual keywords to individual phone numbers. Then if someone calls and uses one of those keywords you know you’ve got a sale and can track it. So if you’re spending £500,000 on these keywords tracking this spend become pretty crucial. When someone pays for a keywords they play per click (whenever that keyword triggers a sale). But, what advertisers rarely realise is that once someone sees phone a number they usually save it to their mobile phone. That number can then be held in that person’s phone, almost forever, even long after a particular keyword campaign has finished. The advertiser is no longer paying for the ad in the paper, but they are still paying for the ad with the number provider. Different companies treat the number differently. Iovox, for instance, keeps each number for as long as the client is playing for it and the number remains live, sending calls to the right place. AdInsight tends to rotate them in a different manner (see below). So a single phone umber can have a life long beyond the advert. And of course, that number can become very valuable. As Ryan Gallagher, Iovox CEO, told me: “We have a number associated with one newspaper advert that only ever appeared once in the paper nine months ago. On a Tuesday. This month there were 1,400 phone calls to that number.” Can that number ever change and become associated with another advert? Technically yes, if the number is rotated. But one phone number can often generate enough revenue to keep it open in theory forever, if the sale resulting form a call to that number is big enough. Some industry estimates say rotating numbers could be responsible for 30-50% of phone leads being junked. A plumber can pay £5-£15 a month for a phone number, often because it’ll make hundreds of pounds in a sale to them, while a lot of businesses will pay £50 a month for Google AdWords, just for visibility. But few businesses want clicks. They want phone calls or people to come and see them, because that makes a sale. That’s where SMEs are at. Unfortunately, while Google and Bing do a great drop of tracking online behaviour, SMEs don’t give a shit, to be blunt – they care if someone calls them, not if they see a we page. That means that keeping a phone number open and trackable in terms of response can be worth far more than AdWords. Visibility online tends to be of far less concern to small businesses. But Web traffic right now is hardly ever linked to someone walking through the door of a restaurant. That link can rarely be tracked, unless you link up a phone number with a Web site or campaign. So what is the market worth? Just looking at the UK, there are 4 million businesses. Some 50% of business for SMEs comes through the phone. Each will have multiple phone numbers, so that could mean billions of pounds in potential sales. Now, while Google has 65% of the search market in the UK against Yell, Bing, TouchLocal etc. search traffic for SMEs is now the key battleground and Google’s share of that market has been dropping as competition from other places, like Bing, increases. That’s why the battle for SMEs is a key battleground, and why this whole business about linking the web with phone numbers has become so important. It’s why Google is going against web directories everywhere. But the real problem is they don’t provide anything above and beyond what the traditional web-only directories provide. So next they need to link offline behaviour with online. Android will be part of that strategy, and perhaps Near Field Communication. They’ll need things which link to the EPOS system in a restaurant or shop that registers that person coming in as a result of a web search. Right now, LiveBookings allows people to bring in a code, then the restaurant knows that person booked online. LiveBookigs is paid when that person physically turns up. What’s at stake is literally analytics for phone calls. You need to be able to tell how many times a number is used, the lifespan of that number, how long people stay on the phone, at what point they they hang up in the call, if there’s a sale etc. Smart number providers like Iovox and Adinsight, and tools providers like Tropo and Twilio treat these voice calls as data. A phone number can also be linked to an ad so that if it’s redirected to a call centre they know what the person is calling about, creating a higher level of service and therefore probably a sale. THE COMPETITIVE LANDSCAPE The tech startups in Europe and beyond, in this space, tend to divide into two, with some raising significant funding. UK-based AdInsight connects a user's browsing history with how he or she then interact with the company on a phone. AdInsight has TUI Travel, Thomas Cook, RAC and British Gas among its customers. The company's flagship product, AdInsight Clarity, links Javascript on a web page to a company's site and individual ads, which then tries to link web behaviour with the eventually call to a company. It can also attach unique phone numbers to specific online ads and integrates Google's AdSense and AdWords analytics into its reports. There is also Tropo, which is more about tools for developers, allowing them to add voice, SMS, Twitter and IM to applications. It’s effectively an application platform that enables web developers to write communication applications – such as deploying voice and telephony apps – in familiar languages such as Ruby, PHP or Python rather than the more obscure VoiceXML. Twilio, (which has raised $36m in funding), makes voice and other telephony APIs used by developers in web and mobile apps. It lets developers incorporate calling functions directly on to sites. The company's voice API, which lets users make and receive calls through those apps, recently expanded to 10 European countries as well as the U.S. and Canada. Microsoft also recently offered Twilio voice and text APIs to developers on its Azure cloud platform. Twilio effectively offers developers similar tools to those that telecoms carriers want to sell, such as the BlueVia platform touted by Telefonica. Unfortunately, Twilio will need a lot more countries to be ubiquitous. Finally, local UK/European player Iovox (which has raised a mere $700,000 from angels) has a priority solution which is closer to AdInsight’s but which concentrates more on making the actual phone numbers people call ‘smart.’ AdInsight tracks the users and rotates phone numbers, but it does not assign phone numbers to adverts. Instead it assigns the numbers to website visitors. For this reason all phone numbers for a client always belong to that client and are rotated automatically once visitors are no longer on the clients website. This allows AdInsight to report on the path of the website visitor before, during and after the phone call, including how they found the website, what adverts they clicked on and what keywords they used, as CEO Ross Fobian tells me. By contrast Iovox’s solution doesn’t rotate numbers associated with campaigns. Twilio and Tropo provide tools to developers. Iovox is more of a turnkey approach. Do thousands of developers beat a turnkey solution like Iovox or Adinsight? Maybe, but it’s like Linux versus Microsoft – companies that want this kind of voice analytics tend to want someone to heavy lifting. A huge directory business like PagesJaunes.fr – France’s Yellow Pages – are unlikely to deal with a lone developer who has built something on top of Twilio which has no aggregate data, no analytics, and no experience. Do companies that require these voice services want to be liable for some random developer, and get sued for it? On the other hand, Twilio’s view is that thousands of developers end up trumping the likes of Iovox. Where Iovox stands out is that is doesn’t just provide information on a customer’s account, but on aggregate data as well. That means a customer running adword campaigns associated with properties can get data in aggregate on all of Iovox’s property clients. Its clients include Microsoft Bing, BT, Yellow Pages (Ireland, Belgium) Live Bookings, Zoopla among others. In Europe they are growing fast but looking to the US. THE FUTURE It’s clear that Google is going to enter this market, though we understand their own in-house efforts are not succeeding. At the same time Facebook just stared doing a pilot in the US, trying to track calls to SMEs from its social network. So the question is, would they pick up a player in the market to help them? Google could acquire Twilio, but they would be acquiring tools for developers, not customers. Acquiring Iovox would mean using it to upsell to their existing customers and help them grow into SMEs. But If someone like Bing was to jump into the market with Iovox or AdInsight, they would acquire those customers as well as a solution, propelling them a lot further down the road. It’s that last hurdle, that ‘last mile’ of the phone call that Google, Bing and Facebook ultimately want to bridge. (Yes, there are technical solutions liks P2P (Skype etc) and the newer RTC Web (Real Time Collaboration on the World Wide Web) effort. But they are years and years away from replacing PSTNs). And it is a big prize – linking the Internet with every person who can receive a phone call on the planet today.
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| TC Gadgets PSA: Nickelodeon’s Gak And Floam Are Back Posted: 13 May 2012 08:19 AM PDT If you’re thinking of a gift for mom, you probably can’t go wrong with Nickelodeon’s Gak or Floam, two toys made back in the 1990s. Gak is, as the name suggests, a sloppy sort of slime while floam is the same slime with foam balls suspended inside. The toys cost $6.99 each and are available now. If you’re wondering why I’m bringing this up it’s because I have kids and I think it’s important for them to play with slime. I played with a bit of Gak over the past week and found it considerably improved over the previous version. As a father, I’m wary of slimy stuff that comes out of plastic containers but the Gak didn’t stick to carpets or clothes and the Floam fell apart far less than I remember. It’s still messy, but not as messy as it once was. Sadly, I felt no pangs of nostalgia while pulled the Gak out with a long schlupping sound. I believe my mother never let us have Gak as kids and, as such, I have little affection towards it. In fact, I never even had Hordak’s Slime Pit or any other slime playset. I feel I missed out.
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| To 4G Or Not 4G? Apple Pulls “WiFi+4G” Branding For iPads Posted: 13 May 2012 08:04 AM PDT  What is 4G? Many an armchair philosopher over the past few weeks has pondered this concept and now, thanks to a minor tempest caused by upset customers, Apple has changed their iPad branding from “WiFi+4G” to “WiFi+Cellular.” Although the iPads were compatible with US 4G networks, the iPads didn’t work with international 4G connections, thereby dropping a few folks in Australia into a tizzy. To prevent this, Apple put the old moniker down the memory hole and replaced it with the new naming convention. Although Apple posted notices at the point of sale explaining the terminology, they also completely changed world-wide branding to reflect the concerns.
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| Box: The Path From Arrington’s Backyard To A Billion Dollar Business Posted: 13 May 2012 06:00 AM PDT  It’s no secret that many deals have been struck and key relationships formed at TechCrunch founder Michael Arrington’s former house in Atherton. In case you aren’t familiar, Arrington threw epic parties at his home for the tech community in the early days of TechCrunch. Police were called, booze was flowing, people passed out. I don’t have enough fingers to count how many times I’ve spoken to a Silicon Valley entrepreneur or VC who said he or she used to frequent Mike’s house parties back in the day. Clearly this was the place to be for anyone looking to meet their next investor, acquirer, co-founder etc. And that’s exactly what Box co-founders Dylan Smith and Aaron Levie were thinking when they showed up to Mike’s house in early February 2006 for the Naked Conversations TechCrunch Party. It was in Mike’s backyard where they met then Draper Fisher Jurvetson partner Emily Melton. Beers in hand (actually only Levie was of age-barely, so Smith was drinking water), the pair pitched Melton on their idea. She was so impressed and their passion for what they were building cloud storage, that she immediately introduced them to the DFJ partner covering SaaS and enterprise investments, Josh Stein, who months later led Box’s first round of institutional investment. Smith and Levie credit this meeting as one of the key turning points for Box to become what it is now—a close to billion dollar enterprise cloud storage company with 11 million users, 80 percent of the Fortune 500 as customers, and $162 million in funding. In the company’s latest funding round in the Fall of 2011, the company was valued somewhere above $600 million, a number that could easily have jumped in the past 9 months. While two teenagers starting a tech company out of a garage isn’t that unique in the Silicon Valley world, Smith and Levie’s ability to create a valuable product from thousands of dollars, and instilling confidence in well-known VCs and companies is. From Research Paper To Funding The idea for Box originated from a research project that Levie, who was then a college student at USC, was working on in 2004. Levie’s project examined storage options and in the process of researching his paper he discovered how fragmented the market was. He called up 10 random businesses and asked how they are storing content and data and received ten different answers. Back then, Levie realized in his research that even though there were no iPhones, tablets or Android phones, people still wanted to access data from different places. These places just happened to be extinct technologies now, he adds, joking that the Palm Trio was back then a prime destination to find documents. “The opportunity I saw was to build something that would change how you want to get your information,” he explains. At the time, many thought Gmail would be sufficient for storing data. But Levie felt there was a real business behind where to store data and this was in the cloud. The name Box came from his vision of storing data in a virtual box in the cloud. During the Winter Break of 2004, Levie shared his idea with his high school friends from Mercer Island in Seattle, Smith, Jeff Queisser and Sam Ghodes. Both Smith and Levie had toyed around with startups in the past and had dreams of starting their own companies. The boys shared Levie’s passion for the cloud storage idea and by the Spring of 2005, Levie, Smith and his friends were actually developing a product. Box, at the time, was simply an online file storage service where users could pay to store files in the cloud. This was all happening in between classes, says Smith, who was enrolled at Duke, and in order to fund the early days of Box in 2005, Smith invested $20,000 of money he earned playing online poker. The team actually launched the product in February of 2005 as a simple file storage product for both consumers and enterprises. Levie and Smith sent their pitches to the media and landed coverage on sites like Gizmodo, where they offered free storage incentives for new customers. The fledgling startup quickly accumulated a few customers and began its journey as a real service. In the summer of 2005, Levie, Smith and the team housed themselves in Smith’s parents’ attic in Seattle and worked on accumulating more customers and developing the product. Smith’s younger brother did tech support, Levie said, and he and Smith tried to raise additional financing in Seattle. But this proved to be challenging at the time. “Seattle was lacking the Silicon Valley-Zuckerberg story. VCs and angels in Seattle were still repairing wounds from the Dot.com bust.” Smith and Levie decided to take their roadshow national and began contacting angel investors outside of Seattle. One of those investors was Mark Cuban. Levie cold-called Cuban via email about Box, and got a response from the entrepreneur immediately. In the Fall of 2005, Cuban decided to put in $350,000, which was the company’s first outside investment. Around the same time, Box was scaling fast and it got to the point where Levie and Smith realized that they could no longer attend school and manage the day-to-day activities of Box. Both Levie and Smith approached their parents about dropping out of college in December of 2005. While both Levie and Smith’s parents were supportive, Smith says he his mom was a little bit concerned about throwing the education away. It took some convincing, says Smith, but in the end he promised he would go back and earn the degree at some point. Once the decision was made to leave their respective colleges, Aaron (then 21) and Smith (then 20) mutually agreed that Silicon Valley was the best place to be. The pair packed their bags and moved to Berkeley, California in early 2006, where Smith’s uncle rented them a small garage. As Smith recalled, both Levie and him worked and lived night and day out of the garage. As for the product, Levie and Smith began to brainstorm ways in which to get the service to go viral, and decided to open up the file storage service for free. Smith says this was a key turning point for the company, which began soliciting customers with little sales efforts. In fact, Box was getting so much traffic that servers were breaking down. But in terms of the vision, Box was still a consumer and business company. As Levie explains users “interpreted what they were doing with Box in their own individual way. Some people thought it was backup, others found it a way to replace emails,” he says. Then came that fateful Spring day at Arrington’s house, where Levie and Smith pitched Melton on their company. The boys had already decided they needed to raise a round, and were attempting to make connections with investors on Sand Hill Road, but the in with Stein at DFJ was able to speed up the process. Stein recalls in one of his first meetings at Smith and Levie’s Berkeley garage, he had to step over enormous mound of stinky laundry, and was legitimately worried about the boys’ health in garage. But besides the pungent odor, he was immediately struck by how impressive the product was for a bootstrapped startup. “You could tell right away that this was a company that was very product-focused. Coming off the heels of storage failures of Xdrive, Aaron had come up with differentiated and distinctive vision for what product should do, what it should look like.” And what also impressed him was Dylan’s detailed insight into the startup’s business operations despite his youth. At the first meeting, Stein peppered both Smith and Levie with questions about the company, business model and more. By 2 a.m. the next morning, Stein received a multi-page response from the team with thoughtful, detailed responses to each questions. He saw this as a good sign. “There was an intelligence, an energy and drive in Aaron and Dylan that was immediately apparent. That’s not always the case int he valley,” he says. And when evaluating whether to invest in the company, he thought that the product served a definite purpose in the business world, but had what he called “modest aspirations,” for Box. DFJ signed off on the investment and by July 2006, terms sheets were signed and Box had raised $1.5 million from the firm. Consumer To Enterprise Interestingly, it was Stein who helped define a set vision for the company in its early days. Box, at its start, was focused on both consumers and businesses, offering a dead simple way to store files. In 2006, the company continued to iterate on both sides of the business, launching file sharing options for consumers and businesses. But Stein, who was an active part of Box’s business (and served on the board), saw the writing on the wall that enterprise customers were “stickier,” in his words, and pushed the company to “sharpen its focus.” Even Levie admits that he didn’t grasp how large and substantial the enterprise opportunity was until Stein started pitching him and Smith on a more targeted product. He explains, “Josh Stein started to connect the dots on doing an SaaS enterprise model. We credit him to being able to shine light for us on something we couldn’t see.” The company began tailoring the product towards business users around 2007, and as Stein says, “engagement went through the roof.” Another added feature which helped boost enterprise use was security, which was added in 2008. The company found that businesses were willing to pay even more for added security and permissioning. While not the sexiest product feature, the ability to have administrative control over data was really a turning point for product, says Stein. The addition of admin controls and security played into the needs of big companies, and CIOs started to actually pay attention to Box. It was these offerings that caught the attention of Justin Slaten, Director, Information Technology for Wasserman Media in 2007. “There were lot of companies popping up at time that were consumer facing products in file storage but weren’t focused on the enterprise,” he says. “Box was the first company that was willing to offer a product that focused on business users.” Nearly six years later, Wasserman is still using Box (along with Procter And Gamble, Pandora, Skype, LinkedIn, Turner and many others). Slaten says that Box is “in tune” with what clients want in a user experience, whether that be collaboration, apps or security. “They are always deploying features that I actually want,” he says. By 2008, the company still had just a handful of employees but Levie and Smith were both settling into their defined roles within the business, with Levie as CEO and Smith as CFO. As Stein explains, the founders’ strengths were complimentary from the beginning. “Aaron is focused more on the product, design and technology part of the business and Dylan is drawn to the economics and business model. These defined skill sets allowed them to focus on building business and think about it holistically.” Not only did Smith and Levie work days and nights together, but they were also room mates and actually lived at the offices until 2008. The company eventually moved to Palo Alto shortly after the DFJ funding round, and the Smith and Levie took a loft above the office, which had just a few mattresses on the floor. Living and working together usually doesn’t work for most founders, especially when they are actually sharing a bedroom. But Smith explains that they developed systems early on to be able to live with each other, calling Levie more of a brother than a friend. From A Berkeley Garage To A $600 Million-Plus Dollar Business As competitors started popping up in 2007 and 2008, Box focused on strengthening its enterprise product even further. Box steadily evolved into more than just a file storage platform, becoming a full-fledged collaborative application where businesses can actually communicate about document updates, sync files remotely, and even add features from Salesforce, Google Apps, NetSuite, Yammer and others. Mobile is another area where Box has been focusing, adopting HTML5, launching iPhone, iPad and Android apps and more. Along the way, Box realized the market was much bigger than file storage. As it evolved into a collaboration platform, the company realized the enormous opportunity in providing a simple, cloud-based alternative to legacy systems like Microsoft Sharepoint. The company began aggressively campaigning for existing Sharepoint users to make the switch. Stein says that in 2009, he realized that Box was going to be a multibillion company. “You could see acceleration of taking off. In 2010, the company doubled the amount of sales reps selling the product to businesses and sales and productivity skyrocketed.” Around the same time, Box raised $15 million on Series C funding from Scale Venture Partners, DFJ and U.S. Venture Partners. A year later, Box landed $48 million in new funding from Meritech Capital Partners, Andreessen Horowitz, Emergence Capital Partners, DFJ, Scale Venture Partners and US Venture Partners. And then the acquisition offers started coming in. As reported last year, the company fielded a $600 million acquisition offer from Citrix, exactly 6 years after raising $350,000 from Mark Cuban. While Levie tends to shy away from commenting on the acquisition, we heard from sources that it was a hard decision to say no to. There was a lot of money to be made, and it was a risk to keep pushing forward as an independent company. “I think you get these opportunities once every decade where such a massive change is happening in the landscape that enables a startup to be at the center,” says Levie. “And there is a lot of pressure to make sure you build something successful when making the decisions to stay independent.” When making the decision to turn down the acquisition, Levie and Smith both had the sense that Box’s story wasn’t finished. The company was still growing rapidly, churn rates were down, and customers were actually renewing for additional paid plans, all leading to a healthy, fast-growing top line. Turning down the acquisition was a very clarifying experience for both investors and Box’s founders because it set a clear goal for the company. The expectation was at the time was that if Box stayed independent, the company was going to really go for it, with the goal of eventually becoming a public company. At that point, it made sense for Box to raise another round, with this one totaling $81 million. Investors included Salesforce.com, SAP Ventures, Bessemer Venture Partners, NEA, Andreessen Horowitz and DFJ. As for going public, Levie says that inevitably employees and investors will desire liquidity and being a public company afford this opportunity. Stein echoes Levie’s thoughts, and believes the company is in a prime position to be a public company. “Enterprise SaaS companies are perfectly suited to be public companies. The company’s gross margins are north of 70 percent and there’s recurring revenue, which is great for the public markets,” he explains. “I think Box is the kind of company we see once every decade at DFJ. I compare it to Salesforce but I think Box is actually creating an even larger category of enterprise software. I think it has the potential to be the next email; basically what company intranets are supposed to be.” he says. As for revenue, Box is on track to triple revenue in 2012. Last year, Box reportedly brought in around $25 million in revenue, so we’re looking at a $75 million-plus sales number for 2012. Smith adds that the company is growing faster than they ever have in the past. The Enterprise Culture And The Competition Running an enterprise company presents its own unique challenges. Levie says one of his biggest challenges is developing easy to use products for businesses, and iterating fast, despite being an enterprise company. “Our engineers have to be consumer internet minds, our products have to be consumer minded, we have to move fast but build software like an enterprise company,” he says. Levie explains that each week, Box re-releases the site with fixes. He compares this to the yearly cycle for products builds for on-premise companies. But he sees the rapid product iteration of consumer focused companies like Facebook, as the future of enterprise and cloud. “IBM, Oracle and Microsoft are always going to respond more slowly to market. They haven’t developed a rapid release product development strategy. So how we compete is moving more quickly, and being more agile. We can reach and get end users faster than the bigger player. The next generation of enterprise software companies will be organizations built like consumer internet companies that happen to sell to businesses,” Levie comments. But the challenge to producing fast, and adding features is taking business customers off guard as well as education. For us to flip a feature through quickly, it has to be additive, Levie says. “We can’t impair the customer’s processes and this is a constant tension.” Competition has also come recently from Google with the launch of the search giant’s own storage product, Google Drive. Levie doesn’t seem to be too worried to call Google a competitor. “I can’t think of a single startup that won’t have Google as a competitor. For same reason Oracle could never build a great consumer product, I think it is hard for companies like Google to be a leader in the enterprise.” Another challenge, though unsurprising, is hiring, particularly in engineering and sales. As Box’s COO Dan Levin explains, the company needs to find people who are not only good at their job but also reinforce the entrepreneurial, product-driven, fast-paced culture at Box. He says that Box roughly phone screens 100 people to find ten to interview on site to make 1 to 2 offers. And Box is continuing to staff up. Levie says the company is looking to boost headcount by 50-75 percent by the end of the year. Currently, Box has 425 employees and just moved to new headquarters in Palo Alto. The Future Levie recalls pitching Marc Andreessen a few years ago on investing in the company’s Series D round. He had put up growth projections and goals for Box, and while Andreessen said this data was positive, he asked Levie a thought-provoking question. “How fast does the storage market have to grow to get to these goals?” It’s a question that Levie continually repeats to himself when making projections for the future of Box. Levie sees Box’s future particularly centralized around creating an ecosystem of apps both on mobile and web platforms. Last fall, Box launched a platform for developers building off of the Box platform, called the Box Innovation Network (/bin). And earlier this year, we learned about Box OneCloud, a mobile cloud and API for the enterprise that allows businesses to access, edit, and share content from their mobile devices. Box is also looking to use data to help businesses make better business decisions. And adding new applications to the Box platform helps bring more data into the collaboration flow. “We want Box to be the foundation for storage, permissions, collaboration, security, with horizontal apps built on top of the service. We think we can be an important broker for applications to generate business and demand,” says Levie. Smith adds that Box also plans to build data centers in additional countries in the world, and sees international markets as a huge growth area for the company. A few years shy of their thirtieth birthdays, Smith and Levie are at the helm of one of the fastest growing enterprise startups in the technology world. And the company is fast approaching a billion valuation, if it hasn’t reached that already. Box’s story isn’t an overnight success but more of a testament to the strength of having two, passion-driven founders who weren’t afraid to cold-call well-known investors, drop out of college to live the startup dream, and squander thousands in poker winnings on a fledgling idea.
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| Convertible Note Seed Financings: Econ 101 For Founders Posted: 13 May 2012 03:00 AM PDT  Editor's note: Scott Edward Walker is the founder and CEO of Walker Corporate Law Group, a boutique corporate law firm specializing in the representation of entrepreneurs. Check out his blog or follow him on Twitter as @ScottEdWalker. This post is the second part of a three-part primer on convertible note seed financings. Part 1, entitled "Everything You Ever Wanted To Know About Convertible Note Seed Financings (But Were Afraid To Ask)," addressed certain basic questions, such as (i) what is a convertible note? (ii) why are convertible notes issued instead of shares of common or preferred stock? and (iii) what are the advantages of issuing convertible notes? Part 3 will cover certain special issues, such as (i) what happens if the startup is acquired prior to the note's conversion to equity? and (ii) what happens if the maturity date is reached prior to the note's conversion to equity? What Is a Conversion Discount? As discussed in part 1, in the context of a seed financing, a convertible note is a loan that typically automatically converts into shares of preferred stock upon the closing of a Series A round of financing. A conversion discount (or "discount") is a mechanism to reward the noteholders for their investment risk by granting to them the right to convert the amount of the loan, plus interest, at a reduced price (in percentage terms) to the purchase price paid by the Series A investors. In other words, the founders are saying to the investors, in effect, if you take this risk and give us money today, we'll reward you by giving you "20% off" at our Series A round down the road (20% being the usual discount, as discussed below). For example, if the investors in a $500,000 convertible note seed financing were granted a discount of 20%, and the price per share of the Series A Preferred Stock were $1.00, the noteholders would convert the loan at an effective price (referred to as the "conversion price") of $0.80 per share and thus receive 625,000 shares ($500,000 divided by $0.80), which is 125,000 shares more than a Series A investor would receive for its $500,000 investment and a 1.25x return on paper ($625,000 divided by $500,000). (The foregoing example does not include accrued interest on the loan, which is typically about 5%-7% annually, as discussed below.) Discounts generally range from 10% (on the low side) to 35% (on the high side), with the most common being 20%. In Fenwick & West's 2011 Seed Financing Survey (the "Fenwick Survey"), the percentage of convertible note seed financings that granted a discount to investors was 67% in 2010 and 83% in 2011; and the median discount was 20% in both 2010 and 2011. As discussed in part 1 of this series, one of the significant advantages of issuing convertible notes, as opposed to shares of preferred stock, is the extraordinary flexibility they offer in connection with "herding" prospective investors and raising the round. Clearly, a greater discount can be offered to early investors who are assuming more risk, particularly where the startup is closing its financing on a rolling basis over an extended period of time (as is the trend). Moreover, a note can include a discount that increases over time – e.g., (i) 1.5% per month up to 25%; or (ii) 10% if the Series A round closes within 6 months, 15% if it closes between 6 and 12 months, and 20% if it closes after 12 months. In the Fenwick Survey, the percentage of convertible note seed financings that included a discount which increased over time was 25% in 2010 and 5% in 2011. Finally, founders should be aware that investors will sometimes push for the issuance of warrants in lieu of a discount. In a seed round, this makes no sense and only creates more paperwork and, accordingly, higher legal fees. In the Fenwick Survey, the percentage of convertible note seed financings that included the issuance of warrants was 0% in both 2010 and 2011. What is a Conversion Valuation Cap? A conversion valuation cap (or "cap") is another mechanism to reward the noteholders for their investment risk (and for their efforts in increasing the value of the startup as a result of introductions, advice, etc.). Specifically, a cap is a ceiling on the value of the startup (i.e., a maximum dollar amount) for purposes of determining the conversion price of the note — which (like a discount) thereby permits investors to convert their loan, plus interest, at a lower price than the purchase price paid by the Series A investors. Using the example above, let's assume the cap were $5 million and the pre-money valuation in the Series A round were $10 million. If the noteholders invested $500,000 and the price per share of the Series A Preferred Stock were $1.00, the noteholders would convert the loan at an effective price of $0.50 per share ($5,000,000 divided by $10,000,000) and thus receive 1,000,000 shares ($500,000 divided by $0.50), which is 500,000 shares more than a Series A investor would receive for its $500,000 investment and a 2x return on paper ($1,000,000 divided by $500,000), not including any accrued interest on the loan. Notice that if there were a 20% discount and no cap, the noteholders would only receive 625,000 shares or a 1.25x return, as noted above. If we bump-up the pre-money valuation to $20 million and the cap remains at $5 million, you can see how the noteholders are rewarded (and protected): their $500,000 loan now converts at an effective price of $0.25 per share ($5,000,000 divided by $20,000,000) and they would thus receive 2,000,000 shares ($500,000 divided by $0.25), which is 1,500,000 shares more than a Series A investor would receive for its $500,000 investment and a 4x return on paper ($2,000,000 divided by $500,000), not including any accrued interest on the loan. Again, if there were a 20% discount and no cap, the noteholders would only receive 625,000 shares or a 1.25x return. As you can see, noteholders with a 20% discount and no cap would receive 625,000 shares whether the pre-money valuation in the Series A round were $10 million, $20 million or $50 million. This is why sophisticated investors vehemently argue that a note without a cap (i) misaligns the interests of the founders and the investors; and (ii) penalizes investors for their efforts in helping the startup increase its value. The math can be tricky, but the bottom line is that noteholders without a cap do not share in any increase in the value of the startup prior to the Series A round. Accordingly, as discussed in detail in part 1, a cap is akin to a valuation in a priced round (i.e., if the startup were issuing shares of common or preferred stock); however, the beauty of a cap is that it is not a valuation for tax purposes — which facilitates the financing by allowing the founders to grant different caps to different investors. In the Fenwick Survey, the percentage of convertible note seed financings that included a cap was 83% in 2010 and 82% in 2011; and the median valuation cap was $4 million in 2010 and $7.5 million in 2011. How Do the Discount and the Cap Interrelate? If the convertible note includes both a discount and a cap, the applicable language will typically provide that the conversion price will be the lower of (i) the price per share determined by applying the discount to the Series A price per share; and (ii) the price per share determined by dividing the cap by the Series A pre-money valuation. As reflected in the examples above, the reason the conversion price is the "lower of" (not the "higher of") is because the lower the conversion price, the more shares the noteholders are issued upon conversion. In the first example above where the discount was 20%, the cap was $5 million and the pre-money valuation was $10 million, we saw that the conversion price was (i) $.80 when we applied the discount to the Series A price and (ii) $.50 when we divided the cap by the pre-money valuation. Accordingly, the conversion price would be $.50 (the lower of) for purposes of computing the number of shares issued to the noteholders upon conversion. Now watch what happens if we drop the pre-money valuation to $6 million: Applying the discount, the conversion price, of course, stays the same at $.80; but when we divide $5 million (the cap) by $6 million (the pre-money valuation), we get $.83, which is obviously higher than $.80 — and thus the discount applies, not the cap. This is a bit counter-intuitive because the pre-money valuation exceeds the cap by $1 million. Notice, however, that unless the pre-money valuation were greater than $6,250,000, the cap would not be triggered ($5,000,000 divided by $6,250,000 equals $.80). If this weren't confusing enough, there is one other complex issue that founders need to be aware of with respect to discounts and caps: the additional liquidation preference that is created. Indeed, this is a particular problem, and could result in a substantial windfall to investors, in a large convertible note financing with a low conversion price. For example, in a $2 million convertible note financing with a 50% discount (or a 50% conversion cap ratio), the noteholders would receive $4 million worth of shares of Series A Preferred Stock upon conversion (not including accrued interest), which would include whatever liquidation preference is attached to the shares (typically 1x). Accordingly, the noteholders would receive an extra $2 million of liquidation preference. There are several different approaches to solving this issue, the most elegant of which is to convert the notes into a different series of preferred stock (e.g., Series A-1), with a liquidation preference per share equal to the conversion price; however, for purposes of this post, it's enough for founders simply to be aware of this issue and how it relates to discounts and caps. What is the Typical Interest Rate and How Do the Investors Get Paid? The third and final piece of the economics puzzle is the interest rate component. Again, a convertible note is a loan and typically requires the startup to pay simple (not compounded) interest on the amount of the loan. Interest rates on convertible notes have historically been in the range of 7%-10% annually, but recently have dropped to the 5%-7% range. In the Fenwick Survey, the median annual interest rate in convertible note seed financings was 6% in 2010 and 5.5% in 2011. As alluded to in the examples above, the interest is not paid in cash on a periodic basis like a typical loan, but instead accrues (or accumulates), and then the total amount of interest due is added to the loan amount and converted into shares of preferred stock upon the closing of the Series A round. For example, if the interest rate were 5% in a $500,000 convertible note seed financing and the Series A closing occurred on the one-year anniversary of the convertible note closing, the investors would convert an additional $25,000 ($500,000 x .05). Each state has its own laws (called "usury" laws) that limit the maximum interest rate that may be charged on a loan. In California, for example, unless an exemption applies, the maximum annual interest rate for a non-consumer loan is the higher of (i) 10% or (ii) 5%, plus the rate charged by the Federal Reserve Bank of San Francisco on advances to member banks on the 25th day of the month prior to the date of the loan (or, if earlier, the date of the written loan commitment).
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| PayPal Gets Its Own Share Of The Yahoo Diaspora, Hires JavaScript Icon Douglas Crockford Posted: 13 May 2012 12:08 AM PDT  The reorganizing and downsizing at Yahoo — and possibly the executive scandal at the very top of the pyramid — are leading to a wave of talent departures at the company: the latest in that story is that Douglas Crockford, a trailblazing JavaScript guru most recently at Yahoo, has joined eBay’s payment giant PayPal. The news was announced by Bill Scott, PayPal’s senior director of UI engineering, on his own blog, yesterday. Scott himself had also worked at Yahoo years ago and joined PayPal six months ago from Netflix. “Welcome aboard Doug! Stoked to be working with you again ,” Scott wrote yesterday. (It was a note I first saw via HackerNews.) The news signifies the Yahoo story coming full circle in way: Yahoo’s CEO Scott Thompson, currently the subject of so much scrutiny over his past experience, himself comes from PayPal and has hired other executives away from his former employer in his strategy to rebuild the struggling internet giant. (Sam Schrauger coming on board in April to lead its new consumer commerce unit is one of the latest.) The departure is also ironic, given how Yahoo’s recovery should rest on the talent that it has working there. Looking ahead, the hiring raises some questions of what new products and services we might expect next from PayPal. Java (not JavaScript) is used in featurephones, Android and web interfaces. So far there is little information on what he will be doing. “Part of a lot of changes happening at PayPal. Working hard to get the inside changes out to our customers,” Scott wrote of Crockford’s hire on Twitter earlier. Crockford, according to Wikipedia (he doesn’t do LinkedIn, didn’t like total strangers using it to reach out to him), was most recently a senior JavaScript architect at Yahoo. He has played a significant role in the development in JavaScript-based technologies. These have included the development of JavaScript and related tools and the JSON data format, as well as Yahoo’s User Interface Library. In the past he also worked at Atari, LucasFilm and Paramount. Update: I’ve heard back from Bill Scott with some more detail on the appointment. Crockford is reporting to chief architect Edwin Aoki and his mission, with Scott, will be to extend PayPal’s platform activities and “make PayPal the destination for web developers/JavaScript engineers.” He continues: ”Doug will be working on very similar tasks that he worked on at Yahoo! Specifically looking at ways to make JavaScript more secure, evangelizing JS throughout the organization, continuing his work on the ECMA committee, being the face of JS for PayPal, continuing his speaking/teaching tours around the world, etc. In addition he will be partnering with me on more ways to utilize JS both in the server and on the browser for PayPal, working with me to sharpen the skills of our engineers around the globe on all things Javascript and help me attract the top talent in the industry.” He says that PayPal is “moving rapidly” from C++ to Java as a backend technology, but also says that he cannot comment on specifics about the mobile strategy or other product decisions. [photos: FranksValli, Flickr; Bill Scott's blog]
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| Help! There’s A Patent On My Idea! What Now? Posted: 12 May 2012 11:00 PM PDT  Editor's Note: Leonid ("Lenny") Kravets is a patent attorney at Panitch, Schwarze, Belisario and Nadel, LLP in Philadelphia, PA. Lenny focuses his practice on patent prosecution and intellectual property transactions in computer-related technology areas. He specializes in developing IP strategy for young technology companies and blogs on this topic at StartupsIP. Follow Lenny on Twitter: @lkravets and @startupsIP. One of the most frequent questions I get asked goes something like this: "I have a really great idea, but (name of big company or university) has a patent on that. What do I do?" With over 8,000,000 patents issued to date and thousands of new patents issued weekly, chances are good that patents have been issued that are relevant to your business or idea. Knowingly infringing an active patent can lead to disastrous consequences for your business. So what do you do? Well, those people who have asked a patent attorney have already taken the right first step. Patents are legal documents and can be incredibly difficult to understand for those who are not well versed in the language of "Patentese." Talking to a patent attorney is invaluable when dealing with a patent issue. So what follows is a discussion of a few things that should be considered to help give a better understanding of the process and to show that it is not necessarily a hopeless situation. Issued Patents vs. Published Patent Applications First, it is important to know the difference between an issued patent and a published patent application. A published patent application is not a patent, though it may one day become one. The easiest way to tell whether you are looking at a patent or a published patent application is to look at the serial number of the document. A published patent application number starts with a year for when the application was published and then has a slash and an eight digit number following the year (e.g. 2011/01234567). An issued patent is typically only 7 digits long, without referring to a specific year. The newest patent issues will start with an 8 million number (e.g. 8,123,456), while earlier patents start with earlier numbers (e.g. 7,456,789). Note that for older published patent applications, it is possible that the application has been issued as a patent under a different number, so it is important to investigate further to confirm whether a patent has issued. The USPTO's Public PAIR system can be used for this purpose. Even if the application has not proceeded to an issued patent, it may still issue at a later time if the USPTO allows it. As a result, it is prudent to continue to monitor applications that concern you in order to receive notification of a change in status. Is the patent still active? Once it is determined that you are looking at a patent, the next step is to make sure that the patent is still active – that is, that the patent has not been abandoned or expired. While over 8 million patents have been issued, many of these patents have either expired due to their age or have become abandoned for a variety of reasons. For example, patent owners are required to pay maintenance fees at predetermined time intervals. Non-payment of a required maintenance fee will result in abandonment of the patent. The Public PAIR system provides a convenient way to check whether the patent has become abandoned. However, Public PAIR will not tell you whether a patent has expired. Newer patents (those filed on or after June 8, 1995) have a term of 20 years from the earliest effective filing date, while older patents (filed before June 8, 1995) had a life span of 17 years from issue. In addition, for some time before the June 8 date, there was a grace period that provided the patent holder the choice of the longer of 17 years from issue or 20 years from earliest effective filing date. For newer patents, calculating the earliest effective filing date can itself be challenging where there are multiple family members from which the patent claims priority. Therefore, it can be confusing to determine if a patent has expired or when exactly it will expire. One tool for determining a patent's expiration date is the Patent Calculator. However, this tool can't help with determining the patent's earliest effective filing date. Further, the tool does not take into account Terminal Disclaimers or Patent Term Adjustments. Terminal Disclaimers (usually indicated on the front cover of the patent) tie a patent's expiration date to that of another patent and can decrease the life span of a patent. Patent Term Adjustments (also indicated on the front cover of the patent) are granted by the USPTO as a result of delays during the prosecution of the patent application and extend the life span of a patent. Finally, the PAIR system will not specify whether a patent has been found invalid as a result of litigation. Thus, it is best to speak with a professional who knows how to perform this check and evaluate the results. Check the claims Once it is determined that the patent is active, the next step is to look at the claims of the patent. The claims of the patent are typically at the very back of the document and define the scope of the legal protection given to the owner of the patent. These sections typically begin with "what is claimed is" (See below for a sample.) Claims are typically the hardest part of the patent to understand because they are written in a very specific way (each claim is a single sentence). Since the breadth or narrowness of the exact claims will determine whether the patent covers your idea, it is important to understand what specifically is covered by the claims. Consulting a patent attorney is critical at this point. If the attorney determines that the claims of the patent do not read on the idea, a clearance opinion can be written to formalize this finding. Although it may not be strictly necessary, it is nevertheless good business practice to obtain a clearance opinion if the funds for such an opinion are available. A clearance opinion can be relied upon as a defense to 1) willful infringement, or 2) inequitable conduct. Therefore, the clearance opinion can help protect the company from having to pay punitive damages if the company is later found to have infringed the patent. Assignments and Licenses Assuming that the patent is active and that the claims of the patent read on your idea, there are still several options to explore. If the patent holder is not actively practicing the idea, it may be possible to explore a license to practice the invention. A license can be either exclusive or non-exclusive. Obtaining a non-exclusive license means that the patent owner can give licenses to other entities, such as your competitors. The grant of an exclusive license typically means that no other party can have a license to the patent. Licenses can also be sub-licensable and transferable, in case the company is sold or merged. Many patent owners are willing to offer licenses in exchange for equity in the company or for a portion of the profits to be paid at a later time when "profits" become available. Thus, it is not always necessary to have funds available to receive a license. If the patent is especially relevant to the idea, it may be worthwhile exploring purchasing the patent outright. Patents are valuable and many entrepreneurs may not be able to afford a high purchase price. However, if the patent provides a broad scope of coverage, acquiring it can provide a significant advantage to the entrepreneur by providing a barrier to entry for competitors and by making the idea/business more appealing to potential investors. Further, by purchasing an existing patent, the waiting period, uncertainty, and expense of filing your own patent application can be avoided. Again, creative arrangements for assigning the patent rights can be pursued. For example, assignment of the patent in exchange for equity in the company or for a share of the profits may be attractive to both parties. Talk to an attorney Consulting a patent attorney who specializes in transactional practice will be instrumental in determining whether a license or acquisition of the patent is beneficial and/or necessary for the business. Further, the attorney will be instrumental in negotiating reasonable terms, whether an acquisition or a license is sought. If a deal is possible, entering into such an agreement (whether a license or a patent acquisition) has the added benefit of giving the entrepreneur a partner who will have an immediate, active interest in helping your idea succeed. Thus, while it may be tempting to just give up at the sight of a patent, becoming better educated about the patent can result in a positive situation both for the entrepreneur and the patent holder.
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| Marc Andreessen Visits Peter Thiel’s Stanford Class To Talk Startups, How He Invests & The Future Posted: 12 May 2012 09:33 PM PDT  It wasn’t so long ago that Peter Thiel began publicly pushing the somewhat controversial idea that higher education is in a bubble, or launching an initiative to help smart young people “stop out of school.” That’s why for someone who’s advocated for alternatives to higher education, invested in them, and said “we have to reset what the bar is at the top," it was slightly unexpected when Thiel decided to begin teaching at the top. Last month, he announced that he would teach a class at Stanford called “Computer Science 183: Startup.” Thiel has a track record of prescience, both in entrepreneurial and investment decisions, choosing to co-founding PayPal, sink early money into Facebook, LinkedIn, Zynga, and others. Those all worked out well. In turn, Thiel has become known for his controversial views, although many would argue that a re-examination of higher education is just about as close to Truth as we get in Silicon Valley. Obviously, some called Thiel’s return to higher education hypocritical, but as David Brooks of the New York Times pointed out, it’s likely more complicated — or really, more philosophical. In one of his first lectures, Thiel makes the point that the competitive spirit that is embodied in American capitalism often has the unfortunate consequence of constraining the creativity it requires to get ahead. Both are essential to success for life after college, both in entrepreneurial fields and otherwise, but Thiel seems to imply in his lectures that creativity is paramount. Rather than become someone who is slightly above average in a crowded and established field, Thiel says that it’s far more valuable to approach the problem creatively — to establish an entirely new market, and dominate it, rather be just another fish in a big pond. This is the type of advice the investor is giving to his students at Stanford, something we know thanks to Blake Masters, a student of Thiel’s class, who is graduating from Stanford Law this month. Masters has been documenting these lectures in notes, transforming them into essays and posting them on his blog. Check them out here. Through his blog, Masters gives all a comprehensive look into Thiel’s philosophy, his advice to entrepreneurs, and, in a sense, we all get to take the class with them for free. Thiel has brought friends and other notable investors and entrepreneurs into the classroom to share their advice and experience with his students. So far, those guests have included Max Levchin, Stephen Cohen, Paul Graham, Sequoia’s Roelof Botha, Reid Hoffman, and, most recently, Marc Andreessen. Each class begins with Thiel lecturing on his topic of the day, before moving onto conversations with the guest. Both individually and collectively, the posts are fascinating reads, and its no surprise that Masters’ blog has been seeing some serious traffic. The notes that he’s been posting online are not verbatim and instead are his interpretations of those lectures, although he says he’s tried to keep as close to their words as possible — and Thiel has confirmed their accuracy. While they are all of interest to entrepreneurs, investors, and tech enthusiasts, the latest lecture and conversation with Marc Andreessen is particularly fascinating in that it offers an amazing snapshot into the Netscape co-founder’s thoughts on both being an entrepreneur and a VC. Thiel starts out talking about the future, and touches on the concept of (my words) how, while it may be to make some high-level predictions about how consumer behavior is changing or what the future may hold for technology, timing is crucial — especially for entrepreneurs. As the two discuss, investors were eager to throw money into mobile technology 15 years before the space hit the tipping point. They give the example of Apple, and its release of Newton in 1993. Companies, Apple included were thinking about and investing in what they believed the future would hold, but it obviously took another 15 years before it got the timing right for the iPhone. Below are some of the highlights, and you can find the whole post here. Marc Andreessen on Mosaic and how he thought about the future in ’92, ’02:
… Could Zuckerberg have created Facebook if he weren’t younger than 30? Andreessen:
On his philosophy that software is eating the world:
Can Spotify and Netflix be successful?
What areas do you think are particularly promising in the very near term?
Is your perspective different as a VC than as an entrepreneur?
Why do you pass on entrepreneurs?
On Apple’s power:
On creating boards:
On what entrepreneurs should be doing more of:
How should startups establish their founding teams?
On the importance of design:
On the CEO:
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| Pornterest Vs. Pornstagram Vs. Tumblr’s #NSFW Posted: 12 May 2012 08:00 PM PDT  Wow, Pinterest's porn section is fairly tame. I was just curious about the type of not-so-mommy-friendly content that might be popping up on what's now the third-most popular social network after Facebook and Twitter. (Also I'm bored). After all, Tumblr houses, like, a lot of porn. Both services aim to help their members find platforms for self-expression, one through pinning images for inspiration, the other through blogging, and both have also had to fight unwanted content on their networks. For example, both Tumblr and Pinterest recently implemented changes to their Terms of Service banning self-injury and self-harm. This includes the cult of the "thinspo" posters, who like to find "inspirational" imagery encouraging and celebrating their anorexia-induced starvation. Tumblr seemingly took a more proactive stance in its bans, announcing it would apply the policy on a blog-by-blog basis. And yet today, thinspo searches on Tumblr bring back hundreds of posts of jetting collarbones, ribs poking out, thighs that don't touch, and more. Sadly, these are mostly fashion industry photos, so what can you do? Pinterest, which enacted a similar ban on thinspo and other self-harm imagery, a month after Tumblr did, has also apparently had a tough time keeping thinspo off its site. Searches reveal this is still a popular topic for its users. Even Instagram isn't immune to this community, which is incredibly tough to police. When is a photo art, versus something encouraging a disease? That's why it's interesting how the three social services far on other NSFW topics. You know, the dirty ones. There's no #porn or #sex on Instagram, at least not that which you can query up by tag, that is. Depending on when you query it, the #porno tag is either pretty lame or shows full-on nudity. #Pornstar is about the same. But then someone told me about #pornstagram, and yep, there you go. Plus, all those pictures are tagged with other words that can lead you down the Instagram rabbit hole of shame. (To get to the raunchier stuff, you have dig into the tags and accounts of the users posting the images). Pinterest, I first thought, was much cleaner. Apparently, there, porn means food porn, art and kind of silly posts (Kermit watching a nature show with frogs doing it, e.g.). A search for pornstar gets a little dirtier. But guess what mommies like to post? (hint: it's not T&A) Still, the section itself is very small. (The section, I said.) But seriously, even searches for a certain "c" word return pictures of chickens. I guess women really do prefer recipes and shopping to hot, hot sex? Then I found some other boards. Oh, I guess not. Tumblr however, gets freakin' filthy. I mean, really, really #NSFW. It's been said that Tumblr's secret to success is its adult content. Several years ago, that was probably true. Today, Quantcast's Tumblr subdomains' stats show that content has diversified quite a bit. No longer are adult sites the majority of the top destinations on the network. But did it scale on top of porn? Of course it did. And those sites are still out there, if you dig through the subdomain rankings. And let's get real here: Tumblr's own content guidelines have long stated that it's A-OK with porn. Just tag it #NSFW and don't upload adult videos (embed, them, says Tumblr). Why is this important? Well, maybe it isn't. I mean, this is the Internet after all, it's not all kittens and rainbows out there. It's not a new problem either. (Hi,Flickr). But I find it funny that the services are taking the time to worry about the sad, disturbed kids cutting and starving themselves, and yet, aren't worried all that much about the fact that they're hosting teens' posts and photos alongside some very, very adult content. At least some porn sites have the decency to make kids do a little "what year were you born" math before seeing this kind of stuff. There's not a warning message in front of http://www.tumblr.com/tagged/nsfw, but Tumblr does tone down what you see if you’re not logged in. (The company says it has developed several “tools for filtering and warning users about ‘nsfw’ content,” and will soon be adding more.) Look, porn has its place in society, and always will. And, really, it's fine if all these user-gen content services want to host it. And it's fine if you want to go check it out. I don't care. But let's not rave too much about they have the best interests of kids in mind when they launch outreach efforts to save kids from the evils of thinsporation and whatnot. They have a nifty PR campaign, but at the end of the day, they’re fine with porn. And they're not that concerned about what kids see on their site. And, yes, some of this stuff still matters. Pinterest has 11 million registered users. Tumblr, 50 million blogs (some users have multiple blogs) Instagram, some 50 million users. Image via badkikgirl on Instagram
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| Five Ways Native Monetization Is Changing Silicon Valley Posted: 12 May 2012 04:30 PM PDT  Editor’s note: Dan Greenberg is the founder & CEO of Sharethrough, the native video advertising company. Dan has been honored as an AdAge “Media Maven” and was recently named to the Forbes “30 under 30″ list. You can find him on Twitter at @dgreenberg. With a $100 billion IPO pending, it's with confident defiance that Facebook has thumbed its nose at traditional web advertising models. On Facebook, despite their $5 billion 2012 forecasted ad revenue, you'll see no prerolls, no rich media ads, no "punch the monkeys," and no interruption. Facebook is leading the charge for a new generation of media companies who are building their businesses on "native" advertising models, a fundamental shift away from the traditional interruptive ad models that users have learned to ignore. Facebook's commitment to native monetization signals significant change to come. Native advertising is a new form of inventory that seamlessly integrates promoted content from brand advertisers into the fabric of a site itself. Native advertising inventory is content that's part of the site experience rather than ads that interrupt users, such as pre-roll video ads or boxes, buttons, and banners on the corners of pages. Facebook's Sponsored Stories are one of the largest bets on native advertising in the ad industry – a bet that's consistent with the ad strategies of the dominant social media platforms such as Twitter, YouTube, StumbleUpon and the coming ad products from the next wave of internet elite like Tumblr and Spotify. The appeal of "native" monetization models is that they create an alignment between a company's business model (create/publish/curate content) with their revenue model (promote brand content that fits into the site experience), just as Google did with search ads that are relevant to search results. Google AdWords was the original native monetization pioneer, paving the way for Sponsored Stories on Facebook, Promoted Tweets on Twitter, TrueView promoted videos on YouTube, Paid Discovery on StumbleUpon, and Sharethrough's Promoted Videos. These examples are only a handful of a large and growing movement of promoted branded content experiences that have replaced traditional one-way ad formats. Social content sites such as Cheezburger, BuzzFeed as well as publishers like Gawker and The Awl have also followed suit. The success of these companies in figuring out native monetization models has sparked a number of broad-based changes in the startup economy. Here are five ways native monetization is changing the game for startups in Silicon Valley and beyond. 1. Native is now the starting point for monetization strategy. The success of companies such as Facebook and Twitter around native monetization, as well as social content sites such as BuzzFeed, hasn't gone unnoticed by the next generation of entrepreneurs. For these digital natives, their starting point wasn't ever going to be display ads, popups, or prerolls – their starting point for monetization is native. You're already seeing companies like Spotify introducing branded playlists and Tumblr enabling brands to promote their posts. The next generation of internet elite are bypassing the display ad slog altogether and creating ad products that enable brands to engage natively with their audiences. 2. Native is turning heads in the venture community. The value of native monetization hasn't been lost on the venture community either. Imagine an entrepreneur telling a prospective investor that their monetization model is to slap display ads in the corners of their site – not going to happen. For the next generation of startups looking to build long-term businesses, AdSense is just not a viable option. Instead, the startups that can articulate a roadmap for building a native monetization model through ad products that fit uniquely within their sites will find a much more receptive audience. Can you imagine if Pinterest introduced display ad banners to the site (see below)? Users would revolt. 3. Native shepherds in a new wave of ad tech. There are countless sites and apps that have the ability to offer integrated, unique native ad experiences, but instead are still monetizing with AdSense or other standard display options. Why? Because it's easy to set up, it does not require a direct sales team and their developers can focus exclusively on making their site experience as good as possible. While none of these motivations is going to change for publishers, the desire to offer native ad products will only increase as they see the industry increasingly heading that way. As a result, technology companies that can enable publishers to create and monetize native ad experiences will be a big growth area in the coming years. A new crop of native monetization tech companies have emerged like Sharethrough for native video ads, Outbrain for natively promoted articles, and Solve Media for native ads in captchas, to name a few. The next wave of Silicon Valley ad tech gamechangers will help publishers monetize with native ad formats. 4. Advertising is no longer a dirty word for engineers. The most consistent users of "ad blocker" technology are Silicon Valley engineers. Advertising is just not a sexy pursuit for most engineers, largely because the bulk of advertising detracts from a site experience and annoys its users. So it's understandable that an engineer is not motivated to put in their blood, sweat and tears to increase the amount of interruption and add to the thoughtless ads on the web. Times are changing, though – native monetization offers a host of compelling technical challenges that are all in service of building a better internet, one where advertisers create value for users instead of interrupting them. Some of the best engineering minds in Silicon Valley, like Kevin Weil and Gokul Rajaram, now work on the "revenue engineering" teams at Facebook and Twitter. Mekanism, a creative agency based in San Francisco, won last year's "AdAge Small Agency of the Year" award. 5. Native advertising empowers the creative industry in Silicon Valley. A brand's ability to succeed with native ads is tied to the ability of the creative industry to continue creating great brand content for the native medium. Promoted Tweets, Sponsored Stories and Paid Discovery are all new forms of media that the best creative agencies intimately understand and embrace. Just like the cottage industry that grew up in Silicon Valley around SEO, we are seeing creative shops in Silicon Valley and the Bay Area come up in a big way. Groundbreaking Bay Area creative agencies like Mekanism, EVB and Pereira & O'Dell, as well as production shops like Portal A Interactive and Seedwell, have all been built from the ground up around the DNA of Silicon Valley and have quickly become major players in the global ad game. With a shared vision for a future where brands create and distribute content that creates value, not ads that interrupt and annoy, Silicon Valley's creative minds are setting the tone for the next stage of worldwide digital advertising. Portal A's tech-celebrity-inspired video for SF Mayor Ed Lee redefined what a campaign video can be.
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| Digital Wallet Battle Heats Up As Visa And MasterCard Enter The Game Posted: 12 May 2012 02:00 PM PDT  This week, two of the major players in the credit card industry, Visa and MasterCard launched their online digital wallet services. Known as V.me (Visa’s) and PayPass Wallet Services (MasterCard), both are very similar initiatives which see the companies clamoring to become the credit card of choice for digital transactions, the way they fight today to be the credit card for all the other transactions taking place out there in the real world. And, to be clear, a “digital” wallet isn’t necessarily the same as a “mobile wallet,” although a digital wallet service could also be housed in a mobile app interface, as both MasterCard and Visa plan on offering in the near future. While neither of these companies are the types of early stage startups TechCrunch typically favors, their moves will have an impact on a number of companies already operating in this space, like PayPal and Square, as well as those that aim to disrupt the payments industry like Dwolla. Below are the details of what was announced and how the two services compare. Visa V.meVisa’s digital payments service, V.me, wants to make it easier for consumers to shop online, whether via web, mobile or tablet. The service is effectively a digital wallet, which stores not only your Visa card information, but also your MasterCard, American Express and Discover cards. When you’re on a supported merchant’s website, instead of entering in your payment information and shipping preferences manually (as is par for the course today), you only have to enter in your V.me email and password. The merchant still receives your payment through Visa’s network, but your 16-digit card number is not displayed on the site, which adds another layer of security to the transaction. In the future, Visa plans to introduce a mobile payments element to the service as well by leveraging NFC, QR codes and “other technology,” which would allow you to tap your phone to a secure reader at the point-of-sale in order to pay for your purchase, scan a QR code or perform some other type of interaction. Support for offers based on your activity and interests will be rolled out later on, too, the company says. This week, Visa took a major step in making the V.me service a reality. The company announced its beta launch, with its first online merchants, PacSun.com and Buy.com, adding support for the program on its site. The V.me acceptance mark is now visible on the login and checkout pages of both sites. Visa says it’s currently focused on scaling V.me within the U.S. market, but a global rollout is on its roadmap. Over the coming months (Visa won’t provide exact dates), V.me will launch on a number of other e-commerce sites. MasterCard PayPass Wallet ServicesMasterCard, too, has its own take on digital wallets, and unveiled its new PayPass Wallet service this week. The PayPass Wallet is an extension to MasterCard’s already fairly well-known PayPass brand, which offers tap-and-go, NFC-enabled payments that work via PayPass-enabled (NFC) phones, cards, key fobs, or mobile tags at over 441,000 locations worldwide. The same credentials stored in the digital wallet for online payments (PayPass Wallet) can also be accessed for tap-and-go purchases on an NFC-enabled phone through a mobile app. Like V.me, MasterCard’s PayPass Wallet is an open solution, and allows consumers to add their Visa, American Express and Discover cards, whether credit, debit or prepaid. It also keeps your shipping info on file, for faster online checkouts. And, like V.me, PayPass Wallet is making a splash with some big-name launch partners. In this case: American Airlines and Barnes & Noble. Both merchants will incorporate the PayPass Online checkout button on their websites, and American Airlines will go a step further and integrate PayPass Wallet into its own mobile application. Other merchants committed to the solution include Jagex, JB Hi-Fi, MLB Advanced Media (MLB.com), Newegg, Runningshoes.com, TigerDirect.com and Wine Enthusiast Companies. Several banks are on board too, including Banesto, Bank of Montreal, Commonwealth Bank, Citibank, EURO6000, Fifth Third Bank, Grupo Banco Popular, Grupo BBVA, ICBA, Intesa Sanpaolo, Metro Bank, National Bank of Canada, PSCU, RBS Citizens Financial Group, SEB Kort AB Sweden, Sovereign Bank, Swedbank Sweden and Westpac. The solution will be offered as a white label, meaning banks, merchants and other partners can use the PayPass Wallet platform within their own digital wallets. This option will go live by Q3 2012, initially in the U.S., Canada, U.K. and Australia. Finally, like V.me, MasterCard’s PayPass Wallet will roll out to point-of-sale and as a mobile application in the future, but MasterCard isn’t providing exact timeframes on when those solutions will arrive. The mobile app, though, is not necessarily being targeted at consumers, but at the banking partners. “This initiative provides issuers with a turnkey solution to quickly launch a wallet with their own branding using our reference wallet or the freedom to connect their own wallet into our PayPass network,” explains Ed Olebe, Senior Vice President and Group Head, Emerging Payments, MasterCard. “PayPass Wallet Services will accept all credit, debit and prepaid MasterCard, American Express, Discover and Visa cards as long as the merchant or financial institution accepts those cards,” he says. Those with an NFC phone can continue to tap-and-go as they do now, but soon, both NFC and non-NFC users will be able to take advantage of the other benefits of the PayPass platform, including at-a-glance account information which you can peek at prior to making a purchase, spending controls, real-time alerts, and, of course, coupons and targeted offers. The above solutions from the top two credit card companies are notable because of their news this past week, but they’re far from being the only competitors in the space. Outside of startups like Square and PayPal, mentioned above, Google is dabbling with its own mobile wallet/mobile checkout play called Google Wallet and the U.S. mobile carriers are ramping up a mobile payments initiative called Isis. (Worldwide, other carriers have their own programs, too). However, in terms of credit card companies, American Express is another important player in the space. With its previously announced Serve platform, it’s not only competing head-to-head in the online payments space, it’s also working to enable other features like peer-to-peer payments, for example. With so many similarities between the services and some confusion on branding, the problem will soon become one of too much choice. Should you go with V.me or MasterCard’s PayPass (or a PayPass Wallet rebranded by your bank, perhaps?), Serve or PayPal? Wait, PayPal works at point-of-sale too? Does Google Wallet work on my phone? What’s Isis? Although the names of the credit card companies are already familiar, the programs themselves are not. All the players will need to work to deliver clear messages to consumers about what they can and cannot do.
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| Postmates Get It Now Users Spend $100+ A Month — At Least In Month One Posted: 12 May 2012 01:00 PM PDT  Last December, Postmates launched with the plan to offer up a courier delivery service for local businesses throughout San Francisco. But then the team had a brilliant idea: What if it gave its couriers pre-paid debit cards, which would let them purchase goods for customers and then deliver them anywhere in the city? That idea evolved into the Get It Now app, which Postmates launched in private beta in mid-April. Since then, the app has attracted more than 1,000 users in just four weeks. Not surprisingly, many of those users come from tech startups themselves, with employees of Twitter, TaskRabbit, Square, Cherry, and Yelp all signed up to use the service. More than just acquiring beta users, however, the app has been making money. Since launch, the app has pulled in $20,000 in revenue, with the average user spending $116 per month. And it’s getting stuff to people pretty quickly, with average delivery time under 30 minutes. To achieve that, Postmates has greatly increased the number of couriers that it uses for deliveries, from 20 or 25 to 60 altogether. Being able to show that its app makes retailers money gives Postmates some leverage as it tries to get them signed up for its local delivery services. For some top venues in San Francisco, like Little Star Pizza, Pakwaan, or Papalote, offering up a way to offer delivery services without having to actually hire delivery guys seems like a no-brainer. And for lazy customers, or those who don’t necessarily live near their favorite restaurants, being able to get an In-N-Out fix (ANIMAL STYLE!!!) without fighting tourists in Fisherman’s Wharf is a clear win. Co-founder Bastian Lehmann told me he expects the Get It Now app to be released publicly over the next few weeks. In the meantime, if you want to test out the app for yourself, you can sign up for the closed beta at postmates.com/getitnow.
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| Mobile – Facebook And Google Can’t Live With It And They Can’t Live Without It Posted: 12 May 2012 12:00 PM PDT  Editor's note: Guest author Keith Teare is General Partner at his incubator Archimedes Labs and CEO of just.me. He was a co-founder of TechCrunch. Follow him on Twitter @kteare. Facebook's Week In This week Facebook did a virtually unprecedented thing. In the middle of its IPO roadshow it modified its S1 filing in reaction to questions it had been being asked by analysts. The modification I refer to stated that Facebook wanted to acknowledge a trend; that trend is the declining ARPU (average revenue per user) being seen in its current quarter. This trend is being driven, Facebook said, by the growth in its usage on mobile platforms and its inability to monetize those platforms in the same way, or at the same rate, as its desktop/laptop offerings. The previous iterations of the S1 had all contained the possibility of this trend. Even the likelihood of it. But the actuality of the trend was noted here for the first time in the S1. The Street Knows The Truth This is a company about to sell shares at a multiple of earnings that dwarfs companies with massive revenues, profits and growth rates – like Apple's. Facebook’s multiple is of a size that is traditionally only justified by high growth rates. And now "the street" has picked up on the fact that the rate of revenue growth is declining as traffic migrates to mobile. It is even feasible, if this rate accelerates that revenues could fall in absolute terms, as they did in Facebook’s most recent quarter. The street is not happy. This is a historic event. A high growth company entering its IPO whilst its revenue growth decelerates amidst a huge and structural change in the usage patterns of its product is not the norm. Especially when it is the biggest IPO in US history. Amidst the rhetoric that the IPO is over-subscribed, one wonders if the shares can possibly be worth what people are being asked to pay for them. I am not a stock analyst but I think buyer beware is not an unreasonable conclusion to draw from these events and the fact that more than $5 billion of insider money is selling at the IPO price may mean that there are some smart insiders who know the risks. It isn't about Facebook, or the IPO, its about Mobile and the future. Yet, this weeks events are about more than Facebook's IPO and the issues are far from new. Here on TechCrunch we have documented the impact of the rise of mobile and the end of Web 2.0 for some time, stressing that Web 2.0 era companies, running SAAS like cloud services, will be threatened by Apples success in driving large numbers of us to primarily use mobile devices, in an app-centric, message-centric world. In Google's case they are contributing to and suffering from the problem simultaneously through the success of Android. On August 27th 2011, I wrote "Smart Mobile and the Thin Cloud" in which I said that there is a trend in play that: "…will transform the entire software ecosystem over the next 5 years. The changes will be so dramatic that the current discussions of a bubble will appear silly. Huge companies will fail and even bigger new companies will be formed". The article predicted Facebook will be challenged by the growth of mobile devices and the impact of that on the way users interact with data. On January 26th this year, in "Google, Look out Behind you" I said: "Apple has a platform that will soon be numbered in the hundreds of millions. Every device has communications built-in, personalization built-in, media capture built-in. And with iCloud, there is now a place to store the output of each device. How relevant is the Facebook hosted social graph in that world? How relevant is the web ecosystem that Facebook connect has helped penetrate? It seems likely that Facebook will have many of the same challenges as Google as it contemplates the rise of Apple, and the rise of mobile." A few days later – on February 4th – in "Facebook – Run from the Bulls" I said: "Google's present – and Facebook's future – involves the painful fact that the very success of mobile platforms in helping human beings be productive, on the go, has a negative impact on the desktop-based advertising programs of the past 10 years. Mobile growth impacts web advertising revenues, except of course for Apple who make money from hardware and software and so benefits from these trends. The reason is simple. We do less ad-centric activities on mobile than we did on the web. And we are less likely to click away on an ad when we are focused on a specific goal on a largely single window device." Then, on April 15th in "The Mobile Paradox" I wrote: "I believe what we are seeing here is the start of a secular trend that represents nothing less than the end of the web 2.0 era where we all consumed services through a browser on a computer. Replacing that era is a new, app-based, message-centric mobile Internet. In this new era the essential unit of advertising (a page based ad, whether text, display or anything else) is simply the wrong monetization vehicle. Something new has to emerge." Death or Mobile? Facebook is not alone in being threatened by these trends. Google has missed its "Cost Per Click" numbers two quarters in a row now – for similar reasons. The real question is whether Facebook and Google understand the scale of the problems and how to address them. There are only two possible answers.
Or
I think 1 is more likely than 2. Why the belief? Facebook did another thing this week that is highly relevant to this issue. It launched its own app store. Facebook’s app store enables an app developer on either Android or iPhone to use Facebook to trigger users to visit the iPhone app store, or the Google Play app store, and install an app. Facebook becomes possibly the primary way that happens. It may drive millions of app installs across many platforms. These installs are not free, they are pay to play. I think of the app center as providing Facebook with a new type of advertising format – an ad, with an action (an install), and a price on success. As Larry Page noted on Google's earnings call this quarter, mobile demands new types of ad format. He cited "click to call" as an example. Both Facebook and Google will begin to evolve ad units that are a better fit with the user experience on mobile, and ones that reflect the customer goals or the advertiser better. So far, ad formats on mobile have been simply copies of tried and trusted web formats, poorly suited to the new environment. Option 2 – death of the Web 2.0 giants – only seems to be likely in a scenario where these companies fail to understand that their web pasts count for nothing in this new mobile world. This week, if anything, has served as a huge reminder of that. Facebook (and Google) will most likely, by building or buying, evolve their monetization strategies to better suit the mobile future. It may take time, it may be painful, they may even fail. But try they will and try they must. Facebook 2.0 will try to kill Facebook 1.0 and Google 2.0 will try to kill Google 1.0. It's not a good time to be going public, or to be public. But, mobile is the future – they can't live with it, and they surely can't live without it.
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| No, Snapchat Isn’t About Sexting, Says Co-Founder Evan Spiegel Posted: 12 May 2012 11:06 AM PDT  "The minute you tell someone that images on your server disappear, everyone jumps to sexting." Evan Spiegel laughed and leaned back into his chair during his first sitdown interview since his iPhone app Snapchat blew up over the last month. Snapchat is #12 on the free iOS photo app charts in the U.S. and just scored some mainstream media attention in The New York Times. Plus, we hear that Snapchat has also impressed Facebook’s internal product leadership and even Zuck himself. Why? Snapchat is a photo-sharing app that changes privacy norms in a very novel way. The free app allows users to send others photos and control how long receivers can see them. These photos last for up to 10 seconds, before they disappear forever. If you try to take a screenshot, the app will notify the sender. "It seems odd that at the beginning of the Internet everyone decided everything should stick around forever," Spiegel said. "I think our application makes communication a lot more human and natural.” By taking away the part about a photo lasting forever, it actually encourages users to share more (something Mark Zuckerberg would be very happy to see.) The New York Times happened to cover the more risqué side of the app—its potential use for sexting. But the Stanford senior isn't sold on the idea that Snapchat will become the must-have app for sexters. "I'm not convinced that the whole sexting thing is as big as the media makes it out to be," he said. "I just don't know people who do that. It doesn't seem that fun when you can have real sex." Spiegel said most user feedback from direct emails and Twitter posts is about sending funny faces and messages, not racy images. But he added that the app was partially inspired by the Anthony Weiner scandal last spring and a desire to create an app with expiring data. Snapchat user Marilyn Feldman uses the app to keep in touch with her daughter, who attends college across the country. "It's subtly different even from taking a picture on my iPhone and sending that," Feldman said. "It's more immediate and even more casual. Almost like, 'thinking of you.' Picture of a red rose in the neighborhood. I didn't even send her a message, just a picture of the red rose, and she knew what that meant." Spiegel co-founded Snapchat last spring with Bobby Murphy, who graduated from Stanford in 2010 after studying mathematical and computational science. The pair met in the Kappa Sigma fraternity house at Stanford three years ago. Spiegel would often walk down the hall to Bobby's room at four in the morning for computer science help. While living together, they founded Future Freshman, a college guidance site that ultimately failed to attract users and lost out to a rival with more aggressive sales and marketing. They finally gave up on Future Freshman last March, but it wouldn't be long before the duo moved on to working on Snapchat. After kicking the idea around for a bit, Spiegel took it to his mechanical engineering class, 'Design and Business Factors.' "All the VCs and people who came through were like 'This is the dumbest thing ever,'" Spiegel laughed. "So, obviously, I went back to Bobby and I was like, 'Oh, they really liked it!'" After spending the summer together in Los Angeles building a prototype, they were struggling again to attract users. Then something strange happened. The app started going viral in high schools in the Los Angeles area, including at Spiegel's cousin's school. Students were using it to pass notes and communicate during the school day. In March, Barry Eggers, a managing director at the venture capital firm Lightspeed Venture Partners heard from his high-school daughter that the top three apps her friends were using in school were Angry Birds, Instagram, and Snapchat. "That's interesting company. Of those, the one we'd never heard of was Snapchat," said Jeremy Liew, Eggers' partner, who pursued Spiegel for a meeting. "We were ignoring them until we couldn't afford it," Spiegel said, adding that many VCs had reached out to them about funding. Just 25 minutes into the meeting, Liew was ready to invest, to the tune of $485,000. The team has wasted no time putting the money to use. They have hired a community manager, as well as two new engineers. "Honestly I think we're building a team here but also a family," Spiegel said. "We've identified some absolutely exceptional people who we really want to work with and I think that's something that's really important." Snapchat still has a small userbase from what we can tell. Spiegel wouldn’t say how large it is, but it seems that the users he does have are insanely engaged. Snapchat currently processes around 25 images every second and the team is focusing on stabilizing their iOS application. (For comparison, Instagram was processing around 25 photos a second seven months ago when it had 10 million users.) Spiegel is also developing an Android app. And of course, they're looking for a way to make some money off the app. While he said they don't currently have a revenue model, Spiegel said they are "having ongoing discussions" about it. "We didn't think we were ever going to raise venture capital so we were planning very early on to generate a revenue plan," he said. The success of that plan will likely rely on whether Snapchat can convince people that it is a new and useful way to communicate – with or without pants.
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| Gillmor Gang: Tomorrow Never Knows Posted: 12 May 2012 10:00 AM PDT  The Gillmor Gang — John Borthwick, Robert Scoble, John Taschek, Kevin Marks, and Steve Gillmor — turned off their minds, relaxed, and floated downstream on the push notification inbox of tomorrow. Borrowing a page from the Tibetan Book of Windows, the Gang debated the impossibility of multitasking, the existence of a new uber operating system, and the overall impact of surrendering to the void. Revolver marked the exact center of the Beatles arc; everything before was prologue, everything after continues to expand as the media is transformed. A quarter of a million may seem like a lot of dollars for playing one song once on a TV show, just as we await the size of the Facebook IPO. Recorded first and sequenced last, Tomorrow Never Knows is the end of the beginning. @stevegillmor, @borthwick, @scobleizer, @kevinmarks, @jtaschek Produced and directed by Tina Chase Gillmor @tinagillmor
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| Never Mind The Servers: AngelPad Start-Up ElasticBox Makes It Easy To Set Up Web Apps Posted: 12 May 2012 09:35 AM PDT  If your response to virtual infrastructure installations is a derisive “Boring, Sidney, booring” then maybe AngelPad startup ElasticBox isn’t for you. However, if you love cloud computing like Nancy loved heroin, I think you may be in luck. ElasticBox, founded by former Microsofies Ravi Srivatsav, Alberto Arias Maestro, and Amadeo Casas Cuadrado, is a service that makes setting up and running a cloud-based service quick and easy. With the service you don’t have to set up the environment in order to run an app. Instead, you can focus on the actual functionality and far less on server maintenance. Ravi wrote us saying: While most of our competition focusses on the deployment and management of servers, ElasticBox focusses on the application level.ElasticBox provides you with everything that is needed to deploy your applications where it makes more sense, whether your criteria is cost, performance or location all under a tight control of an enterprise grade policy management system The company is currently bringing in a few hundred in revenue from actual paying customers, a surprising feat considering they launched on May 8. The service requires some onboarding right now but that will soon change. “We plan to open up for a self serve model in the coming weeks,” said Ravi. “With the increased adoption of infrastructure as a service, enterprises are demanding software solutions that allows them to manage the execution of their applications in the cloud without having to deal with the challenges associated with server configuration and management. The ElasticBox team has seen this problems from the front line, at Microsoft, DynamicOps and MySpace,” he said. The service supports multiple infrastructures including AWS and Microsoft servers. The goal, in short, is to allow folks to deploy their applications onto a clean, ready-to-run (dare I say “elastic”) box and let the company do all the IT maintenance and performance tweaks. The service is open to customers right now although there is a waiting list of about 50 customers in the queue right now, making it a hot commodity. However, if you’d rather live at the quick and easy Chelsea Hotel of cloud computing environments rather than the staid estates of Lewisham, South East London, ElasticBox may be an interesting choice.
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