Monday, April 25, 2011

The Latest from TechCrunch

The Latest from TechCrunch

Link to TechCrunch

Yahoo Moves Fast — Real Fast — To Scoop Up IntoNow For $20 – $30 Million

Posted: 25 Apr 2011 09:00 AM PDT

This past January, upon seeing a demo of IntoNow, we noted that the media check-in game just changed. Apparently, Yahoo agreed — they’ve just acquired the company for something in the range of $20 to $30 million, sources with knowledge of the deal tell us.

There are a couple fascinating layers here. First of all, IntoNow launched just 12 weeks ago. That’s $0 to $30 million (roughly) in just under three months. Second, Yahoo moved fast — really fast — to get this deal done. And they had to — Facebook and Twitter were interested as well, we hear.

Yahoo’s maneuvering here seems to be the opposite of the way they handled the Foursquare negotiations (or should we say, didn’t handle them). We hear that pretty much immediately after IntoNow launched, Yahoo reached out about a possible deal. Music ID service Shazam was also said to be very interested at the time along with one other player in the TV space. But Yahoo SVPs Bill Shaughnessy and Blake Irving wanted to get this deal done bad and they pushed Yahoo to make it so.

Of course, Facebook and Twitter entering the picture during the due diligence period likely helped as well. While both of those companies are said to have had “informal” talks with IntoNow in the past month, Twitter, in particular, was seen as very interested in the space. In other words, don’t be too surprised if they make a move to scoop up one of IntoNow’s competitors — GetGlue, Miso, etc. — as they continue to explore the relationship with television content.

But the competitors lack the audio tracing technology that IntoNow brings to the table. It has helped the service gain traction quickly. We hear they already have between 500,000 and a million users, even though they’re iPhone-only currently. And the amount of content tagged was at a million after just one month, but they’re way past that now.

Now the big question: what will Yahoo do with IntoNow?

It will continue to be very much supported as well as integrated across some of Yahoo’s other properties, we’re hearing right now. And Yahoo’s resources should help them expand to Android, iPad, etc. The entire team of seven is expected to join Yahoo full time with IntoNow CEO Adam Cahan becoming a VP on the product/tech side of things.

While it did only launch 12 weeks ago, IntoNow did have a slightly more complicated beginning. Technically, they were spun out of Auditude, a video monetization startup that raised a second round of funding in January and saw Cahan transition out as CEO to start this new project. Rather than raise a new round of funding right away, IntoNow took some of the Auditude capital in exchange for an ownership share.

Still, thanks to a mostly cash deal (with some stock), we hear that the investors including Greylock Partners, Redpoint Ventures, and a group of angels should be very happy with the quick deal.



Marketing Software Giant ExactTarget Raises $30 Million, Revenue Up 50 Percent

Posted: 25 Apr 2011 08:53 AM PDT

Email marketing software giant ExactTarget has raised $30 million in new financing led by Technology Crossover Ventures with Battery Ventures, Scale Venture Partners and Greenspring Associates participating in the round. This brings the company’s total funding up to $208 million.

The company is also announcing that it posted record performance in the first quarter, increasing revenue 52 percent year over year. The company posted annual revenue growth of 41 percent in 2010 finishing the year with $134 million in revenue.

ExactTarget’s software provides enterprises with email marketing platform that powers everything from email coupon offers and automated fraud alerts to e-statements and SMS text messages. ExactTarget's software provides email marketing tools for a widespread group of big-name clients, including CareerBuilder.com, Expedia.com, the Gannett Co., and The Home Depot.

The new investment will be used to fund key acquisitions, enter new global markets, expand operations across North America, Europe and Asia Pacific and for product development. ExactTarget acquired reseller mPath, CoTweet and Keymail Marketing in 2010.

In 2007, ExactTarget filed for an initial public offering but delayed delay its IPO planes and has withdrew its application with the SEC to trade on the Nasdaq under the symbol EXTG due to the recession. But with the current bullish IPO market in the technology space, ExactTarget may be reconsidering a public offering.



PlaceIQ’s Location-Aware Advertising Can Target You Block By Block

Posted: 25 Apr 2011 08:28 AM PDT

It used to be that all a marketer needed to know was your zipcode, and they could infer your income range and a whole host of other demographic data about you. But with everyone now using mobile phones that can be targeted down to exact GPS coordinates at different times of the day, areas bounded by zipcodes seem vast in comparison. Imagine if instead marketers could break up the world into 100 million different tiles, each one about the size of a city block, and infer everything from what types of people are likely to be found in that tile at any given time. That’s basically what mobile advertising data startup PlaceIQ is setting out to do.

Mobile advertising inventory still goes largely unfilled because the relevance and targeting isn’t that good. PlaceIQ sifts through tons of data about locations to give marketers a mini-zipcode-like profile of each block. The data comes from both open sources and commercial data sets, including place data, retail data, government data, event data, photo data, social data, and, crime data. This goes well beyond Facebook, Twitter, and Foursquare, but the company says it doesn’t use any personally identifiable information. Rather, it is making assumptions based on the contextual cues of a person’s location and time of day.

It takes all of these various hyper-local data sources and maps it onto its 100 million map tiles. Then it normalizes the data and can guess what type of person is likely to be at that location at that time (a student, tourist, shopper, financial or tech worker, etc). It can also spit out information such as retail sales volume, events, foot traffic by time, and social media activity. And once people start responding to ads, it can fold in ad conversion dat aas well. The goal to give marketers the ability to target different mobile ads to students out drinking at night and financial employees working during the day.

Backed with $1 million in angel money from IA Ventures, Howard Lindzon’s Social Leverage and hedge fund manager Jim Pallota, PlaceIQ launched late last week. It is working with partners such as Where (which was just bought by eBay), Navteq, Admeld, and ad agencies such as Havas / Mobext, Integer, and Communefx.



Sciddy Launches: Local Deals For Senior Citizens

Posted: 25 Apr 2011 07:54 AM PDT

Many businesses offer ‘senior discounts’, which are offered to customers who are above a certain age (typically 50, 55, or 60) under the assumption that many senior citizens are retired and/or living on a budget. There are sites that offer an extensive database of available discount codes, such as SeniorDiscounts.com, but they usually look a bit old (pun intented). Enter Sciddy, a new website from Dirxion.

Decidedly not a group buying site like Groupon or LivingSocial, Sciddy lets senior citizens across the United States find discounts on travel, restaurants, shopping, automotive, education, pet services and whatnot in their neighborhoods.

According to Dirxion, businesses across the country are increasingly customizing their plans to recognize seniors for being the most viable buying group in America that they form, with savings of up to 15 percent on their retail purchases.

Sciddy makes it easier to find senior discounts and share them with others, but a quick search reveals there no discounts to be find in major cities like New York and San Francisco, at least not yet – the only discount I could find so far is in Chicago.

That said, visitors are actively encouraged to submit discounts they can find, and local businesses can also contribute their own discount(s) to the site.



Apple Signs Warner To Its Cloud Solution

Posted: 25 Apr 2011 07:45 AM PDT

MP3s are so last century. As we’ve previously reported, Apple is moving iTunes to the cloud and is slowly signing on record labels to supply content. The latest company to fall is apparently Warner Music. The company reportedly signed a deal with Apple last week.

Read more…



Google Takes Overstock.com Out Of The Penalty Box Over Gaming Search Results

Posted: 25 Apr 2011 07:26 AM PDT

Google has released Overstock.com from the ‘penalty box’ after the e-commerce destination was caught artificially boosting its search results earlier this year.

From the brief release: Overstock.com today announced that the search engine penalty enforced on them by Google in late February has been lifted. “We understand Google’s position and we have made changes to remain clearly within their guidelines,” said Overstock.com CEO Patrick Byrne.

According to the Wall Street Journal report from a few months ago, Overstock encouraged colleges and university websites to post links to Overstock products to get discounts on the retail site. Google’s search algorithm tends to factor ‘.edu,’ sites as more authoritative, and will show these results higher in search, and because educational sites don’t often link to retail sites, Ovestock’s product pages were boosted in search rankings.

Overstock discontinued the program with universities, but Google continued to penalize the retail site in search rankings. Overstock recently said that lower search rankings on Google hurt sales by 5 percent during the penalty period.

Google also cracked down on retailer JC Penney after the company gamed Google to get the top result in dozens of lucrative product searches.



Facebook Calls User A Spammer, Gets Sued For $1 In Return

Posted: 25 Apr 2011 07:01 AM PDT

Some time in February of this year, David Fagin noticed he was suddenly being blocked from sending friend requests on Facebook after the social networking giant for whatever reason labeled him as a ‘spammer’.

When it happened again, Facebook told Fagin that he was in danger of getting his account wiped out completely to boot.

Fagin, an AOL News writer, subsequently penned an opinion piece, in which he claims being called a ‘spammer’ is humiliating, equivalent to being labeled an online pickpocket or con artist.

This morning, he announced he is suing Facebook for $1 (documents not available yet).

Fagin is clearly irked because he’s not able to directly contact Facebook’s support team:

“Some might say ‘What’s the big deal? It’s just a stupid social networking site,’” says Fagin.

“But, when you’re talking about arguably the biggest online presence the world has ever seen, one that’s currently worth more than Microsoft, and there’s no way to reach a live human being, that might be something for the FTC and/or congress to at least think about.”

I fail to see how Facebook is worth more than Microsoft, which currently boasts a market cap of $213 billion and change, but let’s not get facts in the way of a frivolous lawsuit.

“It’s not just the support issue, either,” Fagin goes on to say. “Facebook is actively contradicting their own policies. On one hand, they tell you not to ‘friend’ anyone you don’t already know. On the other, the site constantly bombards you with names of people that Facebook themselves suggests you should ‘friend’, as you already have multiple friends in common. This also runs in direct contradiction with the spammer label. If everyone on the site is only supposed to be friends with people they know, then everyone is a spammer.

According to the press release, Fagin’s AOL News story caught the opportunistic eye of NYC-based litigation attorney Gillian Overland. Having never run a company that supports some 700 million active users, Overland comments:

“I read David’s article and completely agreed. The fact that you’re dealing with a company as large and as powerful as Facebook, and their only means of public intercourse is a run-of-the-mill FAQ page? This needs to be fixed.”

And as everyone knows, suing companies for $1 is always a surefire way to get things ‘fixed’.

Or was that $1 billion?

We’ve contacted Facebook for comment and will update when – and if – we hear back.



Amazon Launches The Backstory; A Content Hub For Author Interviews And More

Posted: 25 Apr 2011 06:52 AM PDT

Amazon has launched a new content hub for its Books area, called The Backstory. The content destination includes interviews with authors, guest reviews, authors’ favorite playlists, recipes, podcasts, essays and more.

Amazon is also debuting "Author Interviews@Amazon," as part of the launch which is a new author interview series. Author Interviews@Amazon launches with five video interviews, including celebrity chef Tom Douglas, Joshua Foer, young adult authors Holly Black and Cassandra Clare, and Gossip Girl producer John Stephens. Amazon says that new author interviews will be announced via the Amazon.com Books Facebook page and on Omnivoracious.com, the Amazon.com Books blog. Customers will be able to post questions on these pages for visiting authors that will be incorporated into each interview.

WHat’s interesting about The Backstory is that Amazon is clearly trying to become more than just a destination to buy books. By providing features like Author video interviews Amazon is bringing high-quality content to its platform, alongside e-commerce. And via the ties with Facebook and the company’s blog, Amazon aims to create a community around its content. I’m curious if Amazon will extend this strategy to other e-commerce verticals (i.e. fashion, gadgets).



Nook Color Update Brings Froyo, Email, And Apps To The Color “Ereader”

Posted: 25 Apr 2011 06:21 AM PDT

The Nook Color has always been considered a wannabe Android tablet and the latest update makes the 7–incher more tablet than ereader. Previously, modders opened up the platform to all sorts of Android tomfoolery, allowing users to run nearly stock Android builds that brought email, proper web browsing and apps to the device. Never mind that nonsense, Barnes & Noble just added those features themselves.

The latest update is a doozy. The Nook Color now runs on Android 2.2 and supports Flash, real email, and get this, page turning animations. (Like the iPad!) The Nook Color is open to even more apps, but only designed specificity for the device. Epicurious, Pulse, and Angry Birds are the highlights out of the 125 mostly paid apps but it still can’t run any ol’ Android app.

Read More



Apple Finally Shipping White iPhone To US Stores

Posted: 25 Apr 2011 05:31 AM PDT

Like this hamster, I am sure you are currently running in circles screaming “Excelsior” at your houseplants and pets, as it was written it has come to pass: Apple is finally shipping the white iPhone 4 and all signs point to availability this week.

The white iPhone, to be clear, is the same as the black iPhone 4 but it is white.

Read more…



Nintendo Sees Profit Falling 66%, Announces Wii Successor For 2012

Posted: 25 Apr 2011 04:56 AM PDT

Nintendo posted a new financial report today, and in a nutshell, things aren’t looking too good. The company’s net profit dropped a whopping 66% to $944 million in the fiscal year that ended March 31, compared with $2.78 billion in the same period a year earlier. Revenue in the same time frame fell 29.3% to $12.2 billion.

Nintendo actually posted a drop in full-year net profit for the second straight year, as the company saw weaker sales of the Wii and DS.

Read More



Pixelpipe Secures $2.3 Million To Help You Share Content With The World

Posted: 25 Apr 2011 04:33 AM PDT

Pixelpipe, a San Francisco-based startup that offers a ‘content distribution gateway’ that basically allows people to upload text, photos, videos and whatnot to a variety of social networking and media sharing sites at once, has raised $2.3 million in funding according to this SEC filing.

The company has earlier raised an undisclosed amount of funding from angel investors like James Joaquin and Russ Siegelman, but this is Pixelpipe’s first institutional money since it was founded by Brett Butterfield, former director of R&D at Kodak, back in 2007.

The company offers a slew of tools, including mobile applications for iPhone, Android and more, to help users distribute media to over 100 social networks, blogging platforms or media sharing services, from within a single environment.

We’ve contacted the company to learn who invested, and what the additional capital will be used for. We’ll update when they get back to us.



CloudTalk Releases Social Messaging Apps For iPhone, Android

Posted: 25 Apr 2011 03:39 AM PDT

CloudTalk, a social communications platform that enables users to connect through voice as well as text, photo and video, this morning introduced its new apps for the iPhone and the Android OS, sporting a refreshed user interface and new rich multimedia capabilities.

Voice, perhaps surprisingly, remains decidedly core to the service, with the ability for users to send and receive asynchronous voice messages from their friends (voice mail 2.0?). When words just don’t cut it, users can also add photos and videos to messages.

The new apps – almost evidently – also feature group messaging capabilities, allowing people to message others one-on-one, in a group or to the entire CloudTalk community. All the latest messages in a certain conversation are stored in one place.

CloudTalk, which raised $5.2 million in funding earlier this year, recently launched its own App Platform and Partner Program at SXSW, essentially enabling mobile and Web app developers to integrate voice, text and rich media support into any application.

CloudTalk is based in San Francisco and was founded in April 2009 by CEO David Hayden, a serial entrepreneur who was co-founder of the Magellan Search Engine in 1993 (!), which was sold to Excite back in 1996.

Hayden was also founding chairman and CEO of Critical Path (which went public in 1999), created social networking company JetEye in 2004 and served on the boards of companies like E*Trade Financial, Riya, and eHatchery.



Dan Abrams’ Media Empire Unveils Its Seventh Site, The Mogul-Focused Mogulite

Posted: 25 Apr 2011 03:00 AM PDT

Mogulite, the seventh site in Dan Abrams’ Media Metwork goes live today at 6am EST. In the same family as Mediaite, Geekosystem and The Mary Sue, Mogulite will focus on chronicling the lives of moguls of all stripes, ranging from Mark Cuban to Oprah Winfrey, Arianna Huffington and more!

The site boasts The Real Deal’s Amy Tennery as managing editor and The Daily Beast’s Peter Lauria as consulting editor and will feature content such as an ever changing mogul “Power Grid”  @Jack, @Ev, @Biz and @AriannaHuff are on it) and a spectrum of blog posts about the rich and powerful, from “Pizza And Condoms: The Weirdest Kate And William Products” to “What Microsoft CEO Ballmer Gets Wrong About Employee Compensation.”

From the “Welcome To Mogulite” introduction post:

“We're committed to the idea that what the ultra-wealthy and powerful do matters, as much as many would like to deny it. We're ready to celebrate those helping to change things for the better – while, on the other hand, highlighting hypocrisy and exposing those secretly serving as puppeteers, to make our lives more treacherous. We'd like to keep apace with the gobstoppingly wealthy — preferably over a round of aged scotch. If we can't make it into the boardroom, we can at least join you top tax bracket folks at the Harvard Club and share a drink, right? No? Okay, fine. We'll be at our laptops.”

When asked why he would build a site in the already saturated arena of tech and business, Abrams Media founder Dan Abrams told me, “There are sites out there that cover some similar topics from Dealbreaker to Business Insider, Deadline to The New York Observer so we are going to need to do things differently … When Mediaite launched much of the digital media world released a collective groan followed by the requisite sneer:”right, like we really need another media site.”  Mediaite now sees around 1.2 million unique visitors monthly.

The site’s soft launch has already got me hooked, as anyone who’s followed my brief Twitter rant about Steve Ballmer can attest to (But seriously!). But whether the Mogulite’s addictiveness can sustain it’s initial hook remains to be seen, but this kind of success isn’t without precedent for Abrams. The entire site network currently averages over 9 million unique visitors per month by serving niche verticals. Abrams hopes that number will double in the next two years, as he continues to add more sites.

“The challenge is making the content compelling enough for consumers while also making it ‘insidery’ enough so that the people we write about will care what the editors think. Of course, good traffic would force them to care as has been the case with Mediaite, but at least for the first six months or so, we just need to focus on breaking news and reporting on compelling stories about compelling people,” Abrams says.

Well isn’t that the truth?



Sohu.com Buys Majority Stake In Gaming Company 7Road For Up To $100 Million

Posted: 25 Apr 2011 02:58 AM PDT

Sohu.com, one of China’s leading online media, search and gaming companies, this morning announced that its MMORPG subsidiary Changyou.com is to acquire a majority stake in Shenzhen 7Road Technology (“7Road”), an online games developer and publisher based in China.

Changyou will acquire 68.26% of the equity of 7Road for approximately $68.26 million in cash (see how that works?), plus additional variable cash consideration of up to a maximum of $32.76 million in performance-based earn-outs.

The acquisition is expected to be completed by June 30, 2011.

With the acquisition, Changyou aims to expand to new audiences by adding a development team that specialized in browser-based, rather casual games rather than the massively multiplayer online games Changyou has to date been known for.

7Road is the company behind DDTank, one of the most popular multiplayer shooting games in China that hit more than 350,000 peak concurrent users globally in Q4 2010.

Changyou.com began operations as a business unit within Sohu.com back in 2003 was carved out as a separate company in December 2007 and completed an IPO on April 7, 2009.

The company this morning reported quarterly earnings: total revenues reached a record $97.1 million, an increase of 35 percent year-over-year. Net income rose to $52.8 million, or $0.99 per share, an increase of 33 percent year-over-year.



Personyze Allows Website Owners To Scale Personalization For Visitors

Posted: 24 Apr 2011 09:15 PM PDT

Israeli startup Personyze is launching its website personalization, segmentation, and analytics platform today. Personyze provides businesses the ability to turn their website into a more personalized site that puts the visitor in the center.

The idea behind Personyze is that website owners can quickly and easy ramp up personalization to their visitors. Personyze’s SaaS allows owners to return content in real-time based on each visitor's past site activity, online search history, Facebook preferences, location, etc., Personyze can give web marketers the ability to personalize the whole site rather than just the ads and banners or landing pages.

After a visitor gives permission, Personyze's Facebook integration allows users to publish messages on visitors' walls, so website owners can post promotions and offers to visitors. Other features include offline tracking to measure the effectiveness of campaigns, email personalization, custom event tracking and AdWords integration.

For example, if a visitor arrives at a website after searching “discount toys,” with Personyze you can redirect the visitor to the “Toys on Sale” page and sort the product display by lowest to highest price. Or you could display a banner that offers customers a 10% discount if they buy that day. And Personyze allows you to send a follow-up email advertising a special promotion on toys for a set number of days, if they did not buy something on their first visit.

Of course, for Personyze to truly work, the visitor has to opt-in to this experience. Many visitors may not want to hand over their information, or allow website owners to track their activity.



Yes Facebook Developers, There Will Be An f8 This Year

Posted: 24 Apr 2011 08:45 PM PDT

The Facebook Like button celebrated its 1st anniversary this week, on April 21st. It’s ubiquity makes it hard to believe that it was a little over a year ago when Mark Zuckerberg took the stage at the third annual f8 Developers Conference to announce the button, which is now integrated with around 2.5 million websites worldwide, with 10,000 new ones being added daily.

While the anniversary of the conference came and went with nary a peep from Facebook, judging by this “f8 partnerships” Facebook Group, there will be an f8 in 2011 (Facebook has confirmed). It’ll be interesting to watch that “f8 partnerships” page in the coming months, to see who, if anyone, gets added from outside the company.

Up until now the f8 scheduling has been somewhat erratic (missing 2009 entirely). There have been a total of three f8s so far, the first one happening on May 24th, 2007, the second happening on July 23rd, 2008 and the third one happening between April 21-22 in 2010. In the meantime Facebook has grown from 24 million active users to almost 700 million.

While the conference typically happens in the summer, Facebook has yet to confirm an actual date for 2011 saying only that it’ll keep me posted. Judging by this year’s latency in announcement time, it’s probable that it will be held in late summer, I’m guessing sometime between July and August.

As AllThingsD’s Liz Gannes reports, Twitter has elected to shelve its Chirp conference this year while Google is once again over achieving with a sold out i/o in May. If developer conferences were like college, Facebook would be like the brilliant student who turned in their work late, but turned it in beautifully.



Fidelis College Raises Money to Actually Support Our Troops

Posted: 24 Apr 2011 07:11 PM PDT

You know what’s awful about every politician blindly saying he or she “supports our troops”? It’s usually a hollow sentiment uttered just to get applause.

You know what’s great about every politician blindly saying he or she “supports our troops”? When presented with something that demonstrably helps the troops, there’s zero political capital in obstructing it.

And hence, Gunnar Counselman may not only have one of the best entrepreneur names I’ve ever heard, he may also have come up with one of the first Silicon Valley-based, venture-backed online education startups that will help students, make money, and not be crushed by the lame-brain education establishment.

Counselman’s company, Fidelis College, does a few things. At a basic level, it will help active duty soldiers get a headstart on college educations. It enables them to do the first two years of general education requirements online while still on active duty. Later, it helps place them at a major university that’s inline with their civilian career goals. And these students won’t fall into the student loan curse, because there’s military tuition assistance during active duty that will help pay for the first two years of credits and the GI Bill to pay for the last two years of college post-discharge.

But Fidelis aims to do a lot more than that. Like Geoffrey Canada’s model of following inner-city Harlem kids throughout elementary school, high school and college to make sure they don’t fall through the cracks; so too will Fidelis stay with ex-military students, making sure they are taking the right classes, meeting the right mentors and steering towards their dream careers. This starts with a month at “fork & knife school” where the basics of civilian social graces are taught. Beyond that, Fidelis closely tracks the students through graduation and helps with career placement.

Inner-city kids and vets may seem an odd comparison, but they share one thing in common: High drop out rates. Despite triple the education resources in the new GI Bill, less than 6% of military men and women use their complete education benefits and only 25% complete the degrees they start.

Counselman argues a lot of this is social. He likes to quote an unnamed US Marine when he pitches the company: “They spent sixteen weeks turning you into a Marine. They spent the next four years turning you into a bad-ass Marine who will kick down any door in Falluja. They spend an afternoon telling you what it’s going to be like to be a civilian again.”

Of course, Counselman knows this all firsthand as a third-generation marine. He served in Operation Iraqi Freedom, his dad served in Colombia, Somalia and Desert Storm, and his grandfather served in World War II, Korea and Vietnam. After his discharge, Counselman headed to Harvard Business School.

There’s not a lot to dislike about Fidelis. It helps people who are defending our country. It mostly uses money they are already getting. It makes sure that government money is spent more effectively. And it gives the colleges students who have money to pay their increasingly outrageous tuition. And Counselman says the average score for the military equivalent of the SAT has been increasing since September 11, when enlisting became something that mattered even to many people who had other socio-economic options. It’s now slightly higher than the general US population; it used to be slightly lower.

More than that, colleges get students with a different life experience. Students who have made life or death decisions in combat. Students who have perspective on America’s place in the wider world. Students who understand more than the latest features on Facebook, but what the struggle for survival is all about. Some might call them the anti-millennial.

Counselman’s dad never pressured him to become a marine; in fact he never spoke much about it. But Counselman was struck one day while studying at Cornell, when a kid started to choke in a restaurant and everyone froze. Everyone except an 18-year-old cadet who sprung into action saving the choking student’s life. Counselman wanted some of that, and some of what his father and grandfather had. He wanted to be the guy people turned to in a crisis. “The military is turning out something special,” he says. “It’s just that it’s not a total fit for the civilian world.”

Not only did Counselman get some of that intangible Marine-quality, but as you can see from a slide in his investor deck, the three generations even look remarkably alike:

Many schools already get this: Counselman was surprised to see that 4% of his HBS class was ex-military. After school, he worked as a consultant at Bain where his bosses would plunk down a stack of military resumes in front of him and ask him to parse through them. They knew there was talent to be tapped coming out of the military, but they had no idea what was an impressive achievement and what wasn’t.

A business like Fidelis would be laudable at any point in American history, but it’s especially smart now for a few reasons. There’s an inflection point in our labor markets: There’s an intense talent-war for certain jobs, while millions more can’t find work. Fidelis can help solve the re-training chicken-and-egg problem the country faces for an important subset of people who risked their lives for the rest of us. It’s all the more important post-recession, when 30% of veterans age 22-30 find themselves unemployed.

There’s also an inflection point in the education market. As we’ve written before, for the first time in recent history there’s a debate raging about whether the cost of education is actually worth it. With our preconceived prejudices stripped bare, online alternatives and different approaches to college education are gaining credibility.

And then there’s market demand: The US is winding down operations in Iraq and Afghanistan, reducing the force size from 2.2 million to 1.6 million. It’s in everyone’s interest to give those veterans the best chance to succeed in the civilian world.

And of course, the founder is always key to the success of any startup. Few people understand the scope of this particular problem and have the skills and contacts to raise venture capital and go solve it. I asked Counselman how many venture capitalists had ever served in the military. He knew of exactly four. It’s a massive disconnect from the years just after World War II when nearly every CEO of a Fortune 500 company was a veteran.

Fidelis has raised just raised $2.5 million from Accel and Novak Biddle, a firm that specializes in education startups. Phil Bronner of Novak Biddle Venture Partners noted that Fidelis is in the middle of a new trend of education companies partnering with prestigious, traditional colleges, but building a for-profit business around it.

It’s a reaction to the University of Phoenixes of the world, where much of the revenues are spent getting students in the door, but the graduation rates are low and the prestige of the degree is questionable. And according to a recent report, those colleges have increasingly been targeting the military, without solving a lot of these more fundamental problems veterans face. “A key difference between Fidelis and the others in the for profit industry is the school from day one is going to be focused on outcomes, rather than focused on an ever expanding enrollment,” Bronner says.

For Accel, the deal was a bit outside its norm. Partner Rich Wong said the firm invested because it was one of the first education deals the partnership had seen that was good for students and made clear business sense. “It’s nice to be able to fund a great idea that’s also the right thing to do,” he says.



If Music Be Thy Dream Of Filthy Lucre, Press Stop

Posted: 24 Apr 2011 02:04 PM PDT

I always enjoy seeing science fiction prophecies come true. Last month, Broadcastr. This month, Wolfram Alpha’s WolframTones, modestly subtitled “A New Kind Of Music.” (Yes, that would be the same breathtaking humility that led them to originally price the Wolfram Alpha app at a hilarious $50. Fortunately, they subsequently bought a clue.)

It is pretty cool, in a geeky sort of way: music generated by fractally complex cellular automata, in the style of your choice—classical, dance, rock/pop, hip-hop, etcetera. Every composition is unique, and can be downloaded as a ringtone. They lay claim to the copyright on all the generated music, mind you, raising the interesting question of what counts as “fair use”, but I’ll leave that rant to Cory Doctorow. What sort of saddens me about WolframTones is that it’s yet another nail in the coffin of ten million teenage dreams of musical superstardom.

I don’t know if its creator Peter Overmann is a fan of the great Australian science-fiction writer Greg Egan, but I do know that he’s just recapitulated something Egan described twenty years ago in his book Quarantine, in a paragraph that has stayed with me since:

I flop onto my bed, and switch on the room’s audio system. The controlling ROM I’ve been playing lately, ‘Paradise’ by Angela Renfield, is one of hundreds of thousands of identical copies, but each piece it creates is guaranteed unique. Renfield has set certain parameters for the music, but others are provided by pseudorandom functions, seeded with the date, the time and the audio system’s serial number.

The copyright question leaps to mind because WolframTones is yet another entry in the arsenal of resources that today’s musicians can (and probably will, regardless of the legality) sample and remix. It’s getting crazy-easy to make music these days. Gorillaz’ new album The Fall was recorded entirely on an iPad while they were in tour, and they’ve since even released their own iPad instrument. Imagine what they’ll do with the iPad 2 and its new GarageBand. Meanwhile, numerous sites allow musicians to collaborate online.

Heck, why bother learning how to play? Or sing? Consider Ark Music Factory, the evil masterminds behind Rebecca Black’s Friday. For only a few thousand dollars, they’ll write and record your music, shoot your pop-idol video, and AutoTune your voice. Meanwhile, the music industry is kind of dying, meaning there’s less money to spread across more artists. Sure, touring can still be lucrative – but most of that money goes to those who built their brand before the modern era. There are and always will be meteoric new exceptions, but they’re increasingly rare. Music has grown so fragmented and overpopulated that just finding good new music has become a big problem in and of itself1.

I keep tabs on the music industry mostly because they tend to be a harbinger for other kinds of entertainment (not least because the music industry released all their wares in a non-DRMed electronic format, also known as the CD, before they quite realized what they had done.) What happens to music will happen to books, and then video games, and then TV/movies. We’ll see fewer and fewer professional musicians, writers, and filmmakers; instead we’ll see vastly more high-quality work created by part-time hobbyists aided by flashy new technology, and fewer and fewer crossover moneymaking hits. This may be great for fans—we’ll see—but I hope you don’t dream of making music / writing books / directing movies for a living. It was never easy, and thanks to all this amazing new technology, it’s getting even harder every day.

1Full disclosure: I’m currently doing some contract development work for a semi-stealth mode startup named Rexly who are trying to solve that problem.



The Royal Scam

Posted: 24 Apr 2011 12:26 PM PDT

Roger Nichols died the other day. He was the engineer behind the Steely Dan records, the ones that stood in the great chasm between George Martin's Beatles productions and whatever is going on today. When I think of what could be of the great realtime stream we're all building, I hope and trust it will somehow reach toward the quality of that perfection.

It felt like a perpetual motion machine, a unique world inside a glass ball, shimmering in the precision of the world's greatest drummers' time machine. Some felt it lacked emotion, settling for cool perhaps. You could say that, but as the years went by, the clock kept quietly ticking — through the rage of the punks, the bloat of the eighties, the decades we stopped counting. Like a Kubrick film, exacting in its architecture, with tinges of humor and slashes of jump cuts.

Today we talk of bubbles, of the hype cycle, of valuations and pre-IPO marketplaces where we can retain control over the precision of our inventions. My favorite bubble is AirPlay, where Steve Jobs' hobby as he called it is transformed into a gateway drug for the new media. We know what the iPad is good for, but what a surprise awaited us when we started to notice the little icon that connects us back to the time when music and film and even TV kept us in the know about what was important.

Back then music was freed of the tyranny of the cartel's fear of digital copying. Back then we stole from each other, guilty of the pleasure of honoring those we loved and admired. And the sharing gave back to us this explosion of riches, the feeling of walking among the gods even if we were mere mortals. The sweet insolence of confidence that we were busy inventing the world.

You can see that spirit alive today, as it always is. On Netflix, a Marx Brothers film, not the classic ones but a middle-aged one reusing the Casablanca sets. There's Harpo with that goofy expression, a glint in the eyes that says everything The Clash would say years later as they rocked the Casbah. The Times obituary quoted Nichols saying he didn't mind the endless retakes of Becker and Fagan: "It would have driven a lot of other engineers up the wall. In my own way, I'm just as crazy as they are."

Back then we called them records as they spun slower and slower, from 78 to 45 to 33 and a third. You could lose yourself in the liner notes, the arcana (specialized knowledge or detail that is mysterious to the average person: “knows the arcana of police procedure and the intricacies of litigation” (George F. Will)) of producers and engineers and musicians and doctors and lawyers and thanks to God et al. Like baseball cards or bird watching or the clocksmith tinkering in his inner sanctum, a world where we all took the time to revel in what we were inventing.

There was no concept of users, or the audience back then. We felt like the baseball fan sure that if we turned off the game too soon or failed to wear the lucky hat that day, that our team would lose. If we weren't in the loop, the bubble wouldn't exist. Does that sound like the Stream today? It should. Twitter's power is in our shared assent, our cooperation, our delight at co-writing the liner notes of our time.

Still, the tools rebel at our temerity. Word barfs every time I construct a sentence that dangles, splaying a green line below the fragment but not suggesting a replacement. It's almost a validation of the choice of fewer words, the flailings of the machine as it debates whether to add the style to the dictionary or continue to obstinately tell us it doesn't learn. It wants to be helpful, but with a schoolmarmish virtual rap on the knuckles. No, it doesn't like schoolmarmish at all.

Real soon now they'll unlock the two sides of AirPlay, the liner notes displacing the default animals on the HD screen alongside the music. I listened to the new Paul Simon record yesterday, produced with another great master of then and now, Phil Ramone. The CD format is too small for the aging eyes, too dark for the underlit room in this turn off the hall light energy crisis $5 a gallon moment. I'd pay for a channel that pushed the graphics and liner notes and pictures and web site with upsell and concert promos and so on. C'mon guys, the iPad is here.

On the record, God speaks (Paul in a close-miked Bill Cosby voice): Big Bang, That's a joke I made up, Once when I had eons to kill, You know, most folks, They don't get when I'm joking, Well, maybe someday they will… I found this at my neighborhood record store, aka Starbucks. Simon, who used to be on Warners and Columbia (Sony) with Garfunkel, is now on Hear Music aka Starbucks Corporation. I'm beginning to get that they are joking.

And so I will mourn Roger Nichols with the great pleasure of knowing he did what he set out to do: play in the garden of perfection without fear and with no apologies. Back then, they knew what this world was going to look like, because they invented it. Just because Pan Am didn't survive until the real 2001 doesn't mean Kubrick was any less of a prophet. Like Steve Jobs and the inventors of the Cloud, those who dare to be perfect divine our shared future.



@AmericanAir, You Suck

Posted: 24 Apr 2011 11:17 AM PDT

As I sit here writing this post, I am on board an American Airlines flight from Chicago to New York City. I consider it a minor miracle that the plane is actually in the air. After two cancelled flights on this trip alone, a seat without a cushion, and some trouble counting the number of people on the plane which made us return to the gate a second time after another minor problem, I’ve lost count of how many errors American Airlines has now made in this comedy that is my travels. Oh, and @AmericanAir also managed to prove that it is an utterly toothless marketing arm of American which fails when it comes to providing actual customer service. I never thought I’d say this as a loyal American Airlines customer who has travelled hundreds of thousands of miles on American over the years, but it may now be worse than Delta.

Yes, this is going to be a rant. If that’s not your thing, avert your eyes. There isn’t any one thing I can point to that makes me never want to fly American again. Rather, it is everything—a succession of flubs and foibles. I like to believe I am a pretty tolerant air traveler, but everyone has a breaking point.

First, a little context. My tale of travel woe begins last Tuesday on a trip to Chicago with my family, which was cancelled due to severe weather. American rebooked us on a flight with a stopover in Minneapolis, but the storms persisted and we were held there for a few hours. By the time we finally landed in Chicago, what should have been less than a three hour direct flight, turned into an 11-hour journey with three small children in tow. But I don’t blame American for that. The airlines can’t control the weather.

At least the weather was cooperating yesterday, when we were scheduled to fly back. Except our flight was cancelled once again. This time it was because the crew—the one that was supposed to fly the plane—was not available. They were either over-scheduled or someone got lost along the way, I don’t know. But American didn’t have enough crew members to fly the plane.

I never got any notification by email or text message that the flight was cancelled. My wife got a garbled voicemail she couldn’t understand, but it was from an 800-number so she figured it had to be from American. I called, and sure enough, the flight was cancelled.

Okay, I told the agent, book me on another flight. All the flights that day were sold out. How about a connecting flight? Sold out. How about on another airline? Sold out. Grrr. It is a holiday weekend, after all, and I needed to get five seats on a new flight. The agent suggested that I take a 6 AM flight the next day. If it was just me, I’d take it. But getting three sleepy kids to the airport that early in the morning was going to be tough. Anything later? The only other flight available was a 6:55 AM flight.

My flight was cancelled and I was pushed to the next day. Never once was I offered a hotel stay, a flight voucher or an upgrade. At this point, I started Tweeting out my frustrations:


Erick Schonfeld
Not only does @ cancel my flight because they lost a crew + put me on 6AM flight w/3 kids, don't even offer an upgrade #AAsucks

I just needed to vent. But then @AmericanAIr, American’s official Twitter account, gives me hope with this response:


American Airlines
@ Sry to see this, Erick. Pls feel free to DM specific details and we can look into this immediately.

But they didn’t actually do anything about getting me a better flight. They just didn’t want me bad-mouthing them on Twitter (maybe it had something to do with my 31,000 followers). Virgin America got in on the social media PR fun by Tweeting:


Virgin America
@ As always, we look forward to having you onboard!

Too bad they don’t fly to New York from Chicago. Meanwhile, @AmericanAir got back to me and referred me to the 800-number for AA reservations. Thanks, I already tried them. Not that I should get any special treatment, but don’t offer to help if you can’t intervene on behalf of customers. To me, this really points to where social media marketing fails. It is nothing more than PR unless they can provide actual customer service.

Anyway, the worst was yet to come. We rally the kids in the morning, drag my brother-in-law out of bed and make him drive us to the airport. We get there on time, check our bags, get through security. All is good and light in the world. Then we get on the plane.

One of the crew members looks at my ticket and warns me that my seat cushion is missing. They are getting another one, though, don’t worry. I don’t even want to know what happened to the old cushion that they had to remove it. The plane fills up, and still no cushion. I’m standing in the aisle in everybody’s way. An enterprising stewardess grabs another cushion from one of the few remaining open seats and places it on my seat. Great, problem solved.

Not so fast. An airline maintenance worker comes aboard and informs us that you can’t just move a cushion from one seat to another. They look the same to me and the stewardess. No matter. We put it back where it was. Does the maintenance worker have another cushion with him? No, instead he proceeds to place a “Do Not Occupy” sign on the cushion-less seat. Yeah, I wasn’t going to sit there anyway. A lady switches seats with my son so that we can sit together.

Now we are off to the runway. Uh-oh. We have to turn back because “maintenance needs to check something in the cockpit.” We taxi back, they check out the issue, and we are given the green light. Back to the runway we go. We’ve been sitting in the plane for three hours now. And, oops, we have to go back to the gate once again because of a discrepancy between the number of people on the plane and the headcount at the gate. That’s right, American Airlines doesn’t even know how to count.

Here’s the kicker, when we get back to the gate, they let us off to stretch our legs. Nobody asks for boarding passes when we return. Anybody in the gate area could have walked on that plane. So much for security measures (the stated reason why we had to go back to the gate in the first place).

Well, the plane took off eventually. And at least the WiFi works. You’ve still got that going for you, @AmericanAir.


Erick Schonfeld
OMG, we can't take off now because they don't know how many people are on the plane. there's a "discrepancy." did someone escape? #AAsucks


What Should You Do With Your Crappy Little Services Business?

Posted: 24 Apr 2011 10:52 AM PDT

Editor's Note: This is a guest post by Mark Suster (@msuster) a VC at GRP Partners. He blogs at BothSidesoftheTable

There’s a line of thinking in Silicon Valley that you should build product businesses rather than services businesses. This thinking is largely driven by the venture capital industry (and subsequently Wall Street) who are in search of high margin, highly scalable businesses.

It’s nearly impossible to get a services company financed by VCs. You’re a small fish.

So pervasive has this thinking become that on several occasions startup companies with profitable & fast growing tech services businesses have come to me wanting to change their companies to product businesses or to create “spin outs.”

A great recent example of this was a successful group of entrepreneurs who had created a company that will do $10-12 million in revenue at their system integration business in 2011 ($5 million in 2010, $2-3 million in 2009). They feel very confident they can hit $18 – 20 million in 2012.

They have created two internal technology “products” and wanted to figure out how they could turn their services business into a product business that could be financed. This team is talented. They wanted advice. And probably some money.

I gave them advice I don’t think they were expecting from a VC,

“Don’t raise venture capital for this business. Ever. And stop effing around trying to create a product company.”

It is advice I give entrepreneurs often as I have written here on why most businesses should never raise VC.

Why Shouldn’t Most Services Businesses Raise VC?

Well, let’s look at this exact situation:

  • I don’t have access to their actual financial statements but let me make some reasonable assumptions. It would not be a big stretch to image a well run service business like this making 15-25% net profit margins. Early in a services business there are usually no profits as the company reinvests in hiring people to grow, but by $20 million in sales the company should at least be pulling in 10% profits (if not more) depending on how much is reinvested.
  • So assume that in 2012 the company would do $20 million in sales and $2 million in profits (10%) and 2013 they would do sales of $25 million and $4 million in profit (16% net margin) and then slow growth in 2014 to $30 million and $6 million in profit (20% profit). That is $12 million in profits over 3 years.
  • The founders could reinvest this in growth (0% tax, focus on future equity growth) or take the profits of $12 million and divide amongst the founding partners. Assuming there are 3 founders and they own an equal amount (33%) then they’ve just taken $4 million each in profits and note that this is at a qualified dividend tax rate (currently 15%) versus an income tax rate (35%). True, the 15% rates will likely go up in the future, but I doubt they will approach the income tax percentage level.
  • The thing is – even if your services business is a smaller scale than this – you have complete control over the decisions about where to take the business. There is no shame in making a few million dollars in profit and paying yourself dividends while still owning a large percentage (if not all) of your business. It’s how things are done across the country outside of Silicon Valley.
  • The minute you raise VC you have one option – grow & try to become big. No VC is interested in dividends – they want growth. That’s the right answer for VCs.  It may be the right answer for you. But it might not.
  • Trying to turn a successful services business into a product business is getting the cart before the horse. If you really want to do a product business then hire a professional manager for your services company, quit that job and focus 100% on your product company.

Why Build a Services Business in the First Place?
There are at least two types of tech services businesses in my mind:

1. Service as a bridge to a product business - One of the best ways for young startups to finance their business without any dilution is what I call “customer financing,” which is mostly only possible in businesses that target businesses rather than consumers. Customer financing often comes in the form of your company agreeing to build a product with a “sponsor” customer or two and helping them with the rollout / implementation. Often in this strategy you end up giving them the product for free and bill them only services fees. You own the IP you create.

The benefits for the customer are: a mostly custom-built product addressing one of their internal needs, the focus of a very talented young startup focusing on their business need & free product – potentially for life.

The benefits for you are even more clear: you get to build a product raising significantly less external money (if any at all) and therefore no dilution, you get a customer who will help you figure out the real requirements for your business and you have your first real reference client lined up, which should help with future funding and with future sales.

If you set out to build this kind of business you just need to be sure you don’t become a permanent consulting business by default. The “customer-financed” type of tech service business is never frowned upon by VCs – unless you’ve been doing it for 2-3 years with no product business to show for it, by which point they assume you’re the second type of services business.

2. Services for services sake - The type of business that is generally shunned in Silicon Valley is the “pure services” business like consulting, system integration, value-added resellers (VARs), customer support businesses, outsourcing companies, etc.  I have already outlined some of the economic reasons these can be good businesses as well as the one of the most important – retaining full control in you business.

But the broader reason that I often suggest to entrepreneurs is that they’re much easier to build than product businesses even though they’ll never become Google, Twitter or Facebook. Trust me – it is far easier to persuade a business to pay you for your services (a concept they readily understand) than it is to persuade them to buy a totally new product concept and pay for that product.

“How much is that software really worth? Who else is using it? How much did they pay? Wait, I’m only paying “X” for my Salesforce.com licenses – and you want me to pay “Y” for your product? Who are your competitors – how much do they charge?”

I could go on-and-on with all of the sales-blocking messages you will hear when you try to charge for a product. I’ll repeat: everybody understands paying for services. It’s pure irony. At my first company we would have a product sale of $80,000 where the customer would grind us to get the fee down to $70,000 but would readily pay $25,000 extra for “implementation & post-sales support.”

We were building a VC backed software business so I had to focus on the product business. But this lesson in business was never lost on me. And some of my former teammates are now building really awesome services businesses in the exact same field and they own 100% of their companies.

Even tech blogs know this. You struggle to get advertisers to pay your CPM rates and get your page clicks up in a business where you become a near commodity to every other website out there. Yet you can run a conference and mint money. If it’s well run, people readily pay for conferences and sponsors readily pay to become platinum, gold or silver sponsors. Tech blogs can theoretically scale, tech conferences are pure service businesses.

But How Do Service Businesses Grow?
I’m not saying the scaling a services business is easy – it’s not. One big challenge is how to grow the company. You end up needing to add staff and take on more risk without knowing what your future demand will be. There are a couple of ways to think about this growth.

1. Start with a network of independent contractors (1099′s)- When you’re a young company with 3-4 people and you land work that requires 7-8 it can be daunting. You don’t necessarily want to take on the extra employees and risks. I recommend that you establish a network of contractors who want to do similar work to you but don’t know how to sell projects or to build a company. They’ll be glad for the occasional extra work.

2. Vendor financing – When you start to win business – let’s say as an implementation arm for tech / business products or as an ad sales team for large tech / media businesses – you can often get financed in a small way by your vendors who are all to happy to have a bigger ecosystem of implementation houses. They won’t do this before you prove yourself but once you hit a minimum scale this is always an option.

3. Angel financing – just because VCs won’t back this kind of business doesn’t mean angels won’t. If you can show a few million in sales and the ability to return dividends in the near-term there are always smart businesses professionals who will consider financing this. What are there other choices these days – money in a bank at 0.5% interest?

4. Bank financing – OK, so this isn’t immediately likely to come from Wells Fargo, but there are tech banks like Silicon Valley Bank or Square1 Bank that are in the business of financing startups. If you can show regular cashflow and are willing to put your profits into their bank you can often fund expansion this way.

Final message on financing – just be careful not to let your fixed costs get too high as a young services business. In a booming tech market like 2011 it’s easy to think your business will always expand. The problem with service businesses is that when the economy turns revenue & profits take a really big and quick hit. Those companies that have a largely variable cost base and make the tough decisions survive for the next boom.

Why Shouldn’t Service Businesses Become Product Businesses?
If you build a true “technology services for services sake” business at some point you’ll likely build technology products as part of your projects where you either own the IP or you own in jointly with your customer or business partner.

This is where many service businesses make mistakes and go pear shaped. They get “product business envy” because they read too much TechCrunch about their product brethren raising money at crazy valuations and getting sold at even crazier ones. So they set out to build a product business within a services company.

A few problems arise. Firstly, they don’t realize how hard product businesses are. They mistake their successes in selling services as a competency in selling products. This is a huge mistake. Secondly, they often ramp up their cost base to accommodate these costs, which when a down market hits they are more effed than those that stay focused. Finally, the focus on the product (envy) means that they take their eye off of their core business, which is services. So the core business suffers.

I saw this first hand. My first career was at Andersen Consulting (one of the largest services businesses in the world). We built a hugely successful global services business yet we never got over our product envy from watching our tech clients. So we created internal software projects and all of the internal consultants on those projects became blowhards who thought they knew how to create software product businesses.

We stunk at every product we ever created. We had no sense for gathering real customer requirements. We over-spec’d products. We built for our over-intellectual selves. I can’t think of any great software tools ever created internally by Andersen Consulting. We were a great services business. Period.

What Should Services Businesses do with Their Product Businesses?
So back to my advice to the company I recently spoke to about spinning out their tech business or raising VC. My advice wasn’t to shut down all product / IP initiatives but rather to be clear on their purpose and how to monetize them.

1. Products as a service sales machine – My dear friend Franck Meudec in Paris knows this best. He has built some internal technology products to support his services business. They are “loss leaders” for his core business. Instead of going in and trying to hold the line on how much to charge for these products he can tell customers, “Sure, we’ll give you our planning software at cost if you decide to work with us.”

His business is booming. These products help him win his core sales. He is not confused about which is the horse & which is the cart. He is building a services business. Instead of owning 1% in options to join a startup tech company he created his own tech services business. He is the majority owner. Higher risk, higher reward than joining as a junior employee somewhere else.

2. Products as a key differentiator – Another important reason for having internal IP in your services business is as a key differentiator against other services businesses. If a customer is faced with two equal choices for companies who can implement Salesforce.com – how do they choose one other than references & price? Imagine if you had build a few modules on top of Salesforce.com that made that product more effective? Even if you didn’t charge for these it would sure increase your sales hit rate.

Tech services business in booming markets are mostly about how fast you can sell, implement, manage quality, hire and sell some more. In a down market IP can become a huge differentiator.

3. Products as a gross margin bump - Finally, it should be said that in a services business often your implementation rate becomes a commodity relative to others in the market. If you can make an extra 10% on each sale by selling your “add on” products that are at 90% gross margins not only will you increase your win rates but you’ll also add valuable profits to your bottom line.

In summary: I’m not advocating that companies are crazy to try and be product companies. In fact, that’s all that I fund as a VC. But I don’t want the narrow world of venture-backed companies and the trade rags that report on them to dissuade the overwhelming masses of potential entrepreneurs from building meaningful businesses that are both fun and economically rewarding.

Photo courtesy of Fotolio – check ‘em out. Thanks to Ryan Born.



Backstage at Cirque Du Soleil’s ‘KÀ’: Part Two – “Our Stage Is The World’s Largest Giant Kitchen Drawer” [TCTV]

Posted: 24 Apr 2011 10:00 AM PDT

This time last week, I wrote about my backstage tour of Cirque Du Soleil’s KÀ, at the MGM Grand. I also promised to go back and talk to the show’s technical director, Erik Walstad for TechCrunch TV.

In the video below, Erik talks about the technology behind Cirque’s most complex show, and in particular the two gigantic moving stages that form its centerpiece. Then we head to the auditorium to see that technology in action, as Erick’s team reset the show ahead of the night’s performance.

As I wrote last week, a video can’t begin to do the show – or its technology – justice, but Erick’s explanation of how the ‘Tatami Deck’ stage is just like a kitchen drawer is at least better than anything I could possibly write about it.

(And finally, there’s a special feature tucked at the end of the video. Spoiler alert: if you love English narrowboats, you won’t want to miss that.)




OneRiot’s ‘Social Interest Score’ Defines Mobile Audience Segments For Advertisers

Posted: 24 Apr 2011 10:00 AM PDT


As we wrote earlier this year, OneRiot launched a social targeting service for mobile ads, that offers highly targeted ads within mobile apps. Similar to Klout’s social influence score, OneRiot has developed a "social interest score" to define mobile audience segments based on social interest categories.

With the new social targeting service, OneRiot allows advertisers to reach targeted audience
segments on mobile, from busy moms to tech influencers to sports guys to fashionistas. Segmentation and targeting are based on factors such as audience interest profiles, demographics, social influence and realtime conversations. OneRiot's audience profiles are created by mining and analyzing public big data social streams from services (i.e.Twitter). The company says that this data is derived from users that heavily engage with content on their mobile device that is relevant to their current social activity, including status updates, tweets, photos, advertising and more.

Now OneRiot is opening this segmentation algorithm up to allows users to see your ‘social interest segments.’ The algorithm is based on a number of factors, including follow graphs, interest graphs, influence graphs, and the content behind links that are shared across those graphs. You simple enter a social media user name that you associate with on mobile (e.g. your Twitter handle) and OneRiot returns your "social interest segments" – along with an example an ad we might show you. H

For example, if you follow BBC Top Gear on Twitter, and other friends you follow post links to Auto pages on nytimes.com, then OneRiot would categorize that activity as belonging to the "Auto" category. OneRiot would then work with car brand advertisers like Volvo to help them deliver interest-based mobile targeting campaigns to the "Auto" audience segment on mobile.

Audience targeting isn’t new-it happens in online advertising all the time. But it’s interesting to see what segmentation you fall in as a Twitter user and how advertisers are placing you into a particular demographic.

We have early access to the tool for 140 TechCrunch readers. Those who are interested can send an email to theteam@OneRiot.com, and the first 140 responses will get access over the next week.



Food Is The New Frontier In Green Tech

Posted: 24 Apr 2011 09:55 AM PDT

This is a guest post from Ali Partovi, angel investor, startup advisor and serial entrepreneur. He co-founded iLike, acquired by Myspace in 2009, and LinkExchange, acquired by Microsoft for $265 million in 1998. His portfolio has included successes as far-ranging as Zappos, Facebook, DropBox and OPOWER. He was among the first to recognize the significance of the Facebook platform, and among the earliest to grasp the business opportunity of search.

Around Earth Day, we're reminded about global warming and pollution, as well as the "green" technologies and consumer choices that may save our planet. We don't hear as much about agriculture, one of the world's largest polluters, nor do we appreciate the environmental impact of our diet.

According to research by the World Resources Institute, agriculture is mankind's biggest contributor to climate change, generating at least 26 percent of greenhouse gas emissions worldwide — more than from all electricity and industry or from all the world's planes, trains and automobiles. Other estimates suggest agriculture generates 36 percent of emissions.

Feeding the growing world population using today's practices is increasingly unsustainable. Just as we need new technologies in areas like renewable energy, we need more "renewable" approaches to producing the most primal form of energy: food. Brace yourself for this two-minute video from the University of Minnesota, which summarizes the problem with some startling facts:

As an Internet entrepreneur and investor, my interest in food and agriculture began at home, taking care of my body and my kids. In 2008, my wife and I decided to adopt a healthier and more sustainable diet for our family. We switched to exclusively grass-fed meat and ate a bit less meat altogether, added more vegetables, and began raising egg-laying chickens in our backyard. That enabled our seven-year-old daughter to run a startup selling our egg surplus (image, below).

I was pleased to lose about 35 pounds within six months. But I was also surprised to find how inconvenient, obfuscated, and expensive it was simply to eat healthful, natural foods. I began studying the business and politics of food, convinced there must be investment opportunities that align with improving the system. Surely, I thought, there must be healthful, sustainable, yet scalable and profitable alternatives to our unsustainable food and agriculture sectors.

As a student of the space, I've seen enough parallels between food and energy to posit that food may be the next frontier in green tech. Like energy, food and agriculture are big, slow, and highly regulated sectors. But also like renewable energy, there might be opportunities for innovation and profit in "renewable food," fueled by consumer preference today and by shifts in policy tomorrow.

Within the giant food sector the "organic" segment is growing fast thanks to a combination of consumer consciousness and government support. Organic food has enjoyed double-digit growth in the U.S. for two decades (from $1 billion in 1990 to almost $25 billion in 2009) and is growing to over $100 billion globally by 2015. Yet, organic agriculture still represents only one percent of U.S. farmland today. That leaves plenty of room for growth and opportunities for entrepreneurs and investors, especially given the increasingly apparent ties between food and global warming.

“The Other Inconvenient Truth”

We cannot forever feed ourselves on fossil fuel, deforestation, and greenhouse gas emissions.

Today's food and agriculture practices consume enormous amounts of fossil fuel for transportation, operation of farm machinery, and chemical production of synthetic fertilizers and pesticides: roughly 10 calories of fossil fuel go into every calorie of food we eat, representing 19% of all U.S. energy consumption.

Agriculture emits greenhouse gases with an order of magnitude worse global-warming potency than CO2, such as methane (from intensive livestock operations and rice fields) and nitrous oxide (from fertilizers and factory farm waste lagoons). Another agricultural emission, nitric oxide, is the main driver of the new acid rain that is killing forests and fish. Run-off of excess fertilizer from cropland and excess manure from factory farms is the primary cause of enormous aquatic dead zones in coastal waters globally, devastating marine life (and ironically, threatening human seafood supply). These marine dead zones in aggregate represent 95,000 square miles (about 20 times larger than the area impacted by last year's BP oil spill).

Agriculture is overwhelmingly the biggest cause of global deforestation (image, below), driven by livestock and growing Western demand for food commodities like palm oil.

There is hope of mitigating these issues. Via "new" techniques it should be possible for the food and agriculture sector not only to reduce its own emissions, but also to offset emissions from other sectors by removing carbon from the atmosphere. (I say "new" because in many cases the solution involves a return to nature-based, less industrial processes.) More importantly, it should be possible to make money and improve the environment – because the current system is inefficient and wasteful, leaving enormous room to move the needle by eliminating waste.

I’ve encountered promising opportunities, and in several cases personally invested in startups tackling these problems as an angel investor.

Reducing Food Emissions

One way to reduce the carbon footprint of our food is by eating locally grown food, reducing the fuel spent on transportation. However, the practicality of this varies regionally. Here are some companies making local food more widely available.

In the San Francisco area where I live, farmers' markets and CSA (community supported agriculture) programs enable consumers to buy food from local farms rather than from thousands of miles away. A CSA is a subscription that delivers weekly food from a local farm. Although this offers advantages to both consumer and farmer, such programs are less prevalent in other regions and represent a negligible fraction of the food sector.

A tech startup I invested in, Farmigo,  is stimulating this alternative food system for consumers to purchase directly from local farms, removing middlemen and reducing food transportation. Farmigo's Web platform enables buying directly from a farm while simplifying logistics for farmers.

What about regions that simply don't have the climate to produce fresh food year-round? If you live in the East Coast or Midwest, your lettuce and tomatoes have likely spent an expensive week riding thousands of miles in a refrigerated truck from Mexico or the West Coast. Another startup I’ve invested in, BrightFarms, aims to eliminate shipping costs by building greenhouses on the roofs of supermarkets, producing the most "local" food imaginable.

The business model is directly analogous to what's scaled successfully in solar electricity– and not a coincidence, because both represent techniques of converting sunshine to energy that humans can use. BrightFarms is an excellent example of aligning environmental goals with profit by eliminating waste, because photosynthesis is very efficient, whereas trucking a tomato 3,000 miles in a fuel-guzzling fridge is not.

Transportation aside, agriculture's carbon footprint includes the natural gas and petroleum consumed to produce chemical fertilizers and pesticides, as well as the nitrous oxide released to the air due to over-application of those fertilizers. A startup named Solum hopes to help on both sides, by enabling farmers to reduce fertilizer usage via more accurate, real-time measurement of soil chemistry. Solum is backed by Khosla Ventures, one of the world's leading green-tech investors.

Carbon Sequestration

For millions of years, atmospheric carbon was trapped by photosynthesis and stored in the ground. Human agricultural practices have upset this balance.

For example, much of North America, once covered by carbon-trapping grass, has been transformed to grow corn, using fuel-intensive inputs and releasing greenhouse gases into the air from tilling and over-fertilization, largely to feed animals that eat grass in the first place. Cornfields require annual tilling, which releases soil carbon to the atmosphere. They conduct photosynthesis only part of the year, and most of the carbon and calories they capture stay in the kernels, soon to return into the air via digestion. Grass, on the other hand, is a carbon sink, burying most of its carbon and calories in the soil, where it remains.

Americans eat only a small fraction of the corn we produce and much of it in the guise of ingredients like high-fructose corn syrup that aren't essential for human nutrition. About seven times more corn than what we eat is used to feed livestock like cattle (which can digest grass more easily than corn).

Livestock represents a disproportionate part of food's carbon footprint. If more sustainable techniques are scalable, they might be among the most leveraged ways available to combat global warming. The Union of Concerned Scientists has recently stated that raising cattle on grass can be a net carbon sink whereas feedlot cattle operations are a net carbon emitter. Studies suggest that grassland sequesters more carbon than a forest. There is also evidence that grass traps more carbon when grazed, provided that the livestock be moved periodically (moderate grazing causes grass to grow back healthier, whereas clear-grazing kills the grass).

This sounds great for the environment, but is it economically feasible? The Savory Institute is using managed rotational grazing (MRG) techniques to restore America's grassland while often doubling or even quadrupling livestock capacity at the same time.

The premise of MRG is to mimic the behavior of roaming ruminants that evolved over millions of years: a herd chews the grass, stimulating plant and root growth and letting sunlight reach the growth points. Then the herd moves on to greener pastures, leaving behind manure (fertilizer) and hoofprints that soften the soil and help water retention and seed germination. MRG mimics this by moving cattle from one plot of grass to another daily. Wild birds also fit in nature's cycle: they follow a herd to feed on dung beetles, in the process providing pest control and spreading the manure. A new breed of farms mimics this by raising chickens in mobile cages and coops that are moved into a plot of land once the cattle have left it. Essentially, MRG uses livestock to do the job of fuel-intensive tractors, fertilizers, and pesticides.

Increased consumer awareness is fueling demand for 100 percent "grass-fed" or "pasture-raised" meat and poultry raised using these practices. A growing sustainable food movement, the culinary equivalent of renewable energy, is enabling Bay Area meat and poultry producer Marin Sun Farms (image, right) to enjoy an enviable combination of high-margin sales and exponential growth.

The biggest obstacle impeding Marin Sun Farms' growth today is inadequate capital. It cannot secure land, water, and animals fast enough to meet the growing demand. This dynamic reminds me of the early days of Zappos, when Tony Hsieh was desperately seeking capital to secure shoes fast enough to meet the growing demand.

One might ask, is this scalable, or is it an anomalous niche? As it was for Zappos, that is the billion-dollar question, and I don't know the answer. But it certainly makes basic economic sense. Feeding livestock on grass is patently efficient. The animals convert inedible, naturally occurring vegetation to human food, while recycling nutrients to sustain the grass, without requiring costly fuel-intensive chemicals or machinery.

How did we end up with a system so inefficient?

In the U.S., we've had decades of corn subsidies that motivate farmers to over-produce corn, resulting in a surfeit of corn that has skewed market dynamics. This has made it artificially "affordable" to feed corn even to animals that were never evolved to digest it (salmon, for example). Such subsidies might have made sense if America's problems included a shortage of food calories. But today, we face different problems, such as a health-care and budget crisis, a fuel crisis, and a climate crisis. Our policies ought to reward farming practices that alleviate these problems. Consumer consciousness may be enough to make sustainable food profitable in the short-term; but in the long-term, shifts in policy are necessary.

The good news is that governmental policy can be aligned to help in more ways than one. The most elegant but most politically infeasible solution might be to cut corn subsidies. But there are many other regulatory levers. For example, government could offer a "grass subsidy" to reward land use that traps carbon in the soil, aligning with a broader carbon policy. The FDA has suggested that it might regulate antibiotic use in livestock, which would make our food system not only safer but also better for the environment.

Health-based efforts to combat obesity will likely help the environment as well. Carbs in our diet and carbon in our atmosphere are closely linked, and generally lead back to corn subsidies (AKA "carb subsidies"). Lastly, the U.S. Department of Agriculture"Certified Organic" labeling program is a huge marketing boon to environment-friendly practices and can be expanded.

The government could offer additional subsidies to help farmers bridge the transition to organic, or tighten its criteria for animal products to support more carbon-neutral practices. For example, last year, the USDA released tightener standards for organic dairy, requiring that dairy animals be at least 30 percent grass-fed to qualify as "Organic."

Conclusions

Our food and agriculture system is particularly broken, but we can't simply wait for the government to fix it. As with clean energy, there are many opportunities for private enterprise to stimulate progress while making a profit. Some of the short-term opportunities in food might be to leverage consumer awareness and build a brand that stands for environmental consciousness, while aligning for longer-term regulatory changes to level the playing field.

Broader consumer awareness of the problem is critical, whether to make the private enterprise opportunities more scalable, or to precipitate political change. This is why I'm personally considering engaging more vigorously on this issue, using my background in social platforms and grassroots marketing to help more Americans discover the truths about their food and to build a movement to fix it. Please check out my one-day-old website FixFood.com and lend your voice there.

We cannot feed ourselves forever on the current system. The time for developing more sustainable alternatives is right now.


Images:



No comments:

There was an error in this gadget
There was an error in this gadget