Category: Tech news

Flappy Bird, a game you can barely play for more than a few seconds without throwing your phone across the room in frustration, is dominating the App Store and Google Play.

In an App Store first, an indie game developer from Hanoi, Vietnam, Nguyen Ha Dong, has 3 apps in the top 10 rankings right now, which is not only odd because the publisher has seemingly come out of nowhere with these viral hits, but also because there’s no cross-promotion built into the games themselves.

The other two titles, Super Ball Juggling (currently #2) and Shuriken Block (#6) instead seem to be benefitting solely from the word-of-mouth success of #1 free app, Flappy Bird itself.

As for the Flappy Bird game, its deceptively simple appearance with graphics that harken back to the era of 8-bit gaming, is actually one of the hardest games you’ll ever play. And yet the gameplay involves nothing more than tapping your screen to keep a flying bird from running into green pipes that look like they’ve been snatched out of Super Mario Bros. Yes, that’s the extent of it. There’s no other challenge or story.

But good luck, gamers, because if you can get a score in the double digits, you’re some kind of god here. In fact, it’s a game that’s so irritatingly impossible, and yet somehow so addictive, that it seems like it’s been designed more so to have its players run to tell their friends about it, rather than master the skill set it requires. (Though some, of course, have done that too.) After the hundredth time you play it, having only a score of, say, five, it’s like you’re unable to keep quiet about the darned thing.

A simple built-in “Rate” button, one of only a few in the game besides “Start,” “Score,” and a pause button which you’ll probably die if you try to use, allows you to share your frustrations on the app store, while its “Share” counterpart helpfully lets you tell your friends on Facebook, Twitter, SMS or email. “This sucks! You have to try it,” is how those invites generally read. The game is not for everyone, to be clear. It’s kind of an awful little thing that you can even play in spare chunks of time when you only have seconds (maybe not even minutes!) to kill in between some other activity.

As you quickly die and die and die again, the urge to press “OK,” and “Start” seems impossible to resist, so you continue to re-spawn your stupid little bird and try to pass your best score. Overheard at TechCrunch, discussing the game: “Flappy Bird is the downfall of humanity.”

To date, some 300,000 users have rated Flappy Bird, many leaving lengthy reviews with suggestions, requests, and general venting: “The only reason why I have not yet deleted this horrid game is the overwhelming sense of relief and accomplishment I feel when I finally beat a high score,” writes one. “I assume this feeling will soon consume you, too, but don’t say you were never warned.” “Let me start by saying DO NOT download flappy bird…People warned me about it, but I didn’t care,” wrote another. “My life is over. Your life is over. The world is over,” said a third with dramatic flair.

So now the question is, who the heck made this thing? And why did it get so popular?

What we do know is that game developer 29-year old Nguyen Ha Dong runs an indie game studio called .GEARS based in Vietnam. (This appears to be true, given that the site is registered to someone with the same name in Hanoi, Vietnam.) He says he’s been making games for four years. Explains the website, “mostly, we’re making arcade games that are bite-sized, take no more than a few minutes of playing right on smartphones and tablets.

Our work is heavily influenced by retro pixellated games in its golden age. Everything is pure, extremely hard and incredibly fun to play.” So yes, they actually mean to frustrate you to the point of insanity, in case you weren’t sure. Beyond that, Dong is intent on avoiding publicity, which of course, adds to the mystery surrounding Flappy Bird. He has turned down several requests for interviews, and when we sent over some questions about his background, he replied “I’m not comfortable with being exposed.”

Dong’s internet presence has been fairly low-key until now. He has a Twitter account, and has hung around on HTML5gamedevs.com, discussing development. But the .GEARS site is pretty basic, with no mention of who’s behind the games, or what they’re all about.

In an interview with TechCrunch via email, Dong says he’s the sole creator at .GEARS. He explains that the programming in Flappy Bird took 2-3 days to complete, and he reused artwork from other titles. “.GEARS is not a company,” he notes. “It is just myself now but I have to use term ‘we’ to prepare for changes in the future. Before ‘Flappy Bird’, none of my games have 1/100th of that popularity.”

Charts To Die For (And Die For, And Die For, And Die For)

Meanwhile, as Dong remains semi-anonymous, mobile developers and marketers are going crazy over the game’s app store charts. How did a title, released back in May 2013, end up at the top of the App Store? When and how did the viral effects kick in?

Well, the “when” part can be more easily answered, thanks to resources like App Annie. Sometime around the beginning of this year, the app stopped its usual rise and fall pattern, and hit the top charts in Family, Games and Overall.

And there it has stuck. The game is ad-supported, and built using Dong’s own framework on iOS and AndEngine on Android, he explained on Twitter. The ads run at the top of Flappy Bird, but the game doesn’t directly point users to Dong’s other titles.

As for “how” Flappy Bird went viral, that’s a bit murkier. Flappy Bird is getting 2-3 million downloads per day on iOS and Android, Dong tells us. But the game doesn’t have the hallmarks of a paid promotion – that is, a top position achieved though ads or paid downloads. Dong, answering questions on Twitter, claims this, too.

In response to someone wondering if Flappy Bird’s success is really organic, he writes: “It is hard to believe, I understand. I have no resources to do anything else beside uploading the game.” He also says the Flappy Bird Twitter, Facebook and Instagram accounts are not his. “The popularity could be my luck,” he said to Chocolate Lab Apps, during an interview.

Chocolate Lab Apps‘ Elaine Heney suggests that writing the ‘best’ review of Flappy Bird may have even become a ‘sport’ of sorts. People are competing to write the most ridiculous and descriptive reviews of the frustrating game — leading to a stream of reviews that utilizing the #flappybird hashtag on Twitter.

He reconfirms this to TechCrunch, adding, “I don’t know how my games can be so popular. Most of my players are kids in schools. I would like to thanks them for playing my game and sharing it to other people.” Others are more skeptical, saying basically, there’s no way these games could go viral the way they did, especially because of their age.

As for the games’ difficulty, Dong claims that in his games, there are no impossible situations that players cannot pass. “In all my games, the score of Platinum Medal was my best score when I released the apps,” he tell us.

The tip, he notes, is to not push “too hard and too fast.” Going forward, Dong says he plans to update Flappy Bird, Super Ball Juggling, and Shuriken Block right now. He’s also trying to release a new iOS game with the cat in his HTML5 game Smashing Kitty, but it will use different mechanism. “I hope you can see both updates and my new game on the App Store next week.”

Editor’s note: Justin Caldbeck is a partner at Lightspeed Venture Partners and invests primarily in the Internet and mobile sectors with a focus on social media, e-commerce and enterprise software. Follow him on Twitter @caldbeckj.

I can’t think of a buzzier phrase in the tech industry these days than “growth hacking,” and in some ways I also can’t think of a more dangerous trend to glom onto. Sure, growth is good. But only if it’s real growth.

If it’s a marketing campaign that goes viral and wins you a bunch of one-time “users,” it can actually do more harm than good. If it’s a product that is growing through spammy unsolicited social “sharing,” the growth numbers will massively misrepresent the health of the business. The really great growth hackers out there — people like Andy Johns, who helped Facebook, Twitter, LinkedIn and Quora all reach record user numbers — understand that it’s not just about getting as many users as possible, but about helping to get the product experience right and ultimately amassing as large a user base as possible. Those are two very different things.

Take what happened with Formspring as an example. In 2010, the Q&A site experienced the fastest growth of any site ever (as its top brass were quick to point out on Twitter when TechCrunch awarded that honor to Pinterest last year). But within a year that growth had trailed off and eventually the site traffic/usage began to decline. Why? Because of its integration with social media sites, Formspring was able to generate rapid growth, but once visitors had taken a look at the site once or twice, they realized that there was very little value in the underlying product and, as a result, the vast majority of “users” that touched the site didn’t ever come back or engage in a meaningful way.

I am starting to fear that Zynga is destined to be another such example: They did well early on by leveraging very aggressive viral marketing techniques and combining them with what was, at the time, cutting edge in-game monetization. However, it appears to me that the company has lacked something that I always look for as an investor: Product Soul. By that I mean a founder’s vision for the products he or she wants the company to create, a strong belief in the product’s ability to change the lives of its users for the better, and an unrelenting focus on making those products great and easy to use.

For Zynga, this has never been the case. The focus on growth and lack of true product innovation (the company has largely been one that has created knock-offs of other games) has resulted in a company that appears to lack real direction and whose relevance has largely faded over the past year.

Social video app Viddy is an even better examples. It was jockeying with Socialcam and others to be “the Instagram of video” in early 2012 and its growth appeared to be exceptional. From May 2011 to March 2012, the company registered 10 million users, and by May 2012 it had 30 million. By December 2012, it had 40 million registered, but only 675,000 monthly users.

In a six-month span the company’s growth plummeted 95 percent, not just because Facebook cracked down on spammy apps that required users to install them in order to view content, but because the underlying product didn’t resonate with consumers from an ongoing usage standpoint. As a result, tens of millions of users had “tried” Viddy and were left with an underwhelming experience. As any good entrepreneur will tell you, it’s much harder to acquire a user a second time after a bad product experience than it is to acquire them the first time.

There’s no inherent problem with growth hacking, of course. Growth is great and ultimately can be a big driver of enterprise value. The problem is that right now, far too many entrepreneurs are focused more on that than they are on what I believe to be the most important thing of all and, ultimately a more successful driver of sustained growth: When a user touches a product, do they love it? Do they come back and use it again? And, overall, do they have a good experience with it?

I recently had an entrepreneur that I really respect talk to me about the fact that he was considering hiring a growth hacker. They have a strong team, a great company mission and are the early leaders in a large addressable market with a product that is attempting to solve a major pain point for a set of users. But they have a growth problem. Why? First, their early growth has been driven by marketing spend as opposed to organic growth. And second, the vast majority of users who have tried the product aren’t engaging with it on an ongoing basis (even though the product is designed for repeat usage).

Those are two key issues for me, and ones I don’t think a growth hacker can fix. When evaluating the “quality of growth” early on in a company, I look for companies that are growing largely through organic channels (in other words, 85 to 90 percent or more of growth is being driven by free channels). That sort of growth tends to mean that users are choosing to tell others about how great a product is. I also look at a company’s engagement metrics over time to see if users are trying a product or service out once and leaving, or if they’re choosing to engage with the product over and over again.

Given what I heard from this entrepreneur, I strongly suggested that he improve both word-of-mouth endorsements and user engagement before trying to accelerate growth. Once the product is growing organically, and users are voluntarily engaging with it on an ongoing basis, then, sure, by all means hire a growth hacker to help ramp things up.

The problem right now is that many companies seem to be operating under the total misconception that growth fixes all. That leads them to bring on self-proclaimed “growth hackers” who rapidly acquire more customers through spammy viral techniques, but when those customers don’t engage, or — worse — have bad experiences and tell their friends about it, that growth curve crashes. By that point your growth hacker is on to his or her next gig, and you’re left with what you had to begin with: a product that either hasn’t found its audience yet or hasn’t yet given people a reason to engage with it.

So if you’re thinking about hiring a growth hacker, find someone who’s a great product person and who really knows user experience and understands user value, not just someone who knows all the tricks to ratcheting up your growth curve.

Illustration: Bryce Durbin

There’s more eye-candy footage of Felix Baumgartner’s epic space jump. Sports video camera hardware startup, GoPro, released a 30-second Superbowl spot of first and third-person perspective of Baumgartner’s free fall from the stratosphere. Just to manage expectations, it’s not the full first-person perspective of his entire dive to earth that I think many of us have been waiting for.

But, it’s still a human jumping from space to earth–which is objectively awesome no matter the perspective or length of coverage.

What’s the business case for GoPro to shell out all this cash for a stunt that only one (freaking crazy) consumer will ever use it for? It’s more than just ad impressions. As CEO Nicolas Woodman explained at our San Francisco Disrupt Conference, crazy stunts are a big part of product inspiration.

Experimenting with GoPro cameras in crazy scenarios early on eventually led to a major market opportunities, even though originally the ideas just sounded like a lot of fun. Watch his full interview on bootstrapping a startup and his own inspirations below:

It’s time for a little inside baseball! Be still your beating hearts.

But admit it: secretly you want to know about the success/failure of the myriad news sources whose stories flit disconnectedly across your Facebook and Twitter feeds from time to time, if only so you can tell your friends that you already knew who was doomed, on the day that long-fabled Great Shakeout finally comes and half of the world’s journalists find themselves surplus to needs.

Old media! Right? Newspapers, magazines, and even, eventually, television: those shambling dinosaurs will be eaten alive by nimble new-media mammals, obsoleted by customized news feeds like Flipboard and Pulse and Feedly and Facebook’s new Paper. As our collective news diet is slowly but inexorably shaped ever more by our social media feeds, rather than the TV channels we watch or the newspaper(s) we read, their audience will turn away from them and leave them to die. You’d think.

And yet I am the proud possessor of some interesting data which indicates that the world is, as always, to some extent at least, more nuanced and complex than that. I’m talking about my pet social-sharing tool Scanvine, which I built last year* to track, measure, and rank how often news stories from a panoply of sources are shared on Facebook, Twitter, Google+, and LinkedIn. Scanvine now has a whole year of data under its belt, which points in some interesting directions.

A whole lot of old-media sources are stagnating, it’s true. I give you the BBC World feed…

…which is plenty jagged, but clearly shows a slow decline in shares-per-story over the course of 2013. (The red line counts average shares per story, the blue line how many stories Scanvine tracked.) The same was true for Fox News:

…at least until the week of December 2, after which there was a noticeable uptick. Hmm. What could possibly have happened that week?

Oh, right. December 2, 2013: ‘Facebook’s Feed Adds More Links And “Related Articles” To Battle News Discovery Apps.’ And boom, all the major TV networks benefit — ABC, CBS, and NBC all spiked near the end of the year. NBC less so, admittedly … but then, they were the only one of the Big Four who had been thriving already. It seems Facebook’s new feed gave a shot in the arm to some organizations who hadn’t quite figured out social media for themselves.

Will that really matter in the long run, though? All of those graphs are still essentially flat. Consider those old-media mavens who are thriving on social media, like The Atlantic:

And above all, CNN who, to my considerable surprise, boast the second-highest shares-per-story average of any news source that Scanvine tracks:

That’s legitimately impressive — until you compare the slope of that graph to, say, TMZ:

Or most of all, BuzzFeed:

I’m not sure what’s up with that anomalous dip at the end of the year, but that graph as a whole is insane. But still more sensible than Upworthy, which doesn’t just top Scanvine’s source leaderboard, it dominates it to such an extent that I actually thought there was some kind of bug in my code until their pre-eminence was confirmed by NewsWhip. (Which does what Scanvine does, sort of, albeit in a paid and slightly less idiosyncratic way.)

So. My data indicates that a) old-media sources are thriving b) some new-media sources are really thriving. (Other examples: Business Insider and, I’m very pleased to say, TechCrunch.) But not everyone can win. People may be reading more news than ever, but there are still only so many eyeballs to go around. So who’s losing?

Guess what? It’s not just old media. My data says that once-mighty Gawker saw a slight but distinct decline over the course of 2013:

As did Jezebel:

And in the world of tech news, which I know best, some former giants have developed feet of clay. Wired, in particular, has seen far better days:

And it’s hard not to feel sorry for poor PandoDaily, which seems to have essentially flatlined at a mere 100 social shares per story:

Though on the other end of the spectrum, credit where it’s due, The Verge has had a spectacular year.

So what does this all mean, Jon? I imagine you inquiring. Funny you should ask. I just might have an answer or two.

1. New media rises and falls much faster than old media. That bodes ill for the latter.

What happens in the future is all about the rate of change today, and counting shares on social media seems a pretty good way to measure that rate of change. Television, newspapers, magazines — your CNNs, your New York Times, your New Yorkers — appear to have enormous momentum, meaning that their social readerships rise and fall only slowly. External forces like Facebook’s news-feed tweaks can influence this, but only a little.

This isn’t a factor of sheer size, either; BuzzFeed pieces already get many more social-media shares than do most so-called “mainstream” media sources, and yet their share counts just kept on skyrocketing all through last year. Rather, the so-called “new media” tend to rise — but also fall — much faster than the old. I can’t help but wonder whether Upworthy, in particular, will be here today but gone tomorrow.

So will we see a few new-media titans rise to stand with The Economist, The Guardian, The New York Times, etc., and dominate the landscape for many years? Or will those colossi totter and collapse like Ozymandias, only to be replaced by an endless series of flashes in the pan, as new generations of media organizations just keep on evolving and emerging, faster and faster, each one devouring the previous?

I think the answer is staring us in the face, one way or another: and I think its name is BuzzFeed. Immensely successful, hugely popular, everyone’s favorite source of online GIF listicles has quietly diversified to some impressive international and investigative news, as well as video. If BuzzFeed thrives and prospers, then we’re witnessing the rise of a new generation of titans; but if they fail and wither, if they are out-Buzzfed by something newer and hotter and hipper and catchier, then we’re seeing the news industry as we know it descend into an endless thrashing maelstrom of mayflies competing desperately for attention from an ever-more-fickle audience before they, in turn, are devoured. Let’s hope for the former.

2. Permeable paywalls are probably a pretty good idea.

One other striking thing about Scanvine’s data: every single source that Scanvine tracks, without exception, has a shares-per-story distribution which looks something like this:

Or this:

In other words, all online news follows a power law: The scaling exponents may vary, but the fundamental distribution remains the same. A small number of viral articles get most of the attention, a long tail gets little to none, and the decay from the former to the latter is described by a surprisingly smooth curve.

This means that allowing readers to view N articles/month for free, but requiring them to pay a modicum to see the rest, makes good business sense. Your viral articles still go viral, so you attract most of the free eyeballs you would have anyway, while your long tail makes money from subscribers. How big should N be? Well, that depends –

– but this assumes, of course, that you can get anybody to pay you at all, which is a neat trick when there are a zillion other free news sources out there. And how do they pay for themselves? Via advertising, which is really only lucrative if you have a wealthy and highly targeted market like sports or tech news — or via sponsored content, such as…yep, you guessed it. BuzzFeed. So will the future be sponsored or paywalled? Again, for the answer, look to them.

And watch very carefully. Because if I’m right, they are the future of news in miniature, in real time, right here before us, as we witness it. No pressure, all y’all over there: but please don’t screw it up.

*Completely singlehandedly, he muttered modestly, right down to its Android/iOS apps. And its UX design. Which explains its UX design, in case you were wondering.

Indian digital media circles have been abuzz with rumors of potential targets being looked at in the social media analytics space by Twitter, Adobe and even WPP, the world’s biggest advertising company. The latest to join the list of potential targets is Simplify360, a Bangalore-based social media analytics startup that counts over 100 paying customers including big names such as Yamaha, Revlon, Target and Wipro.

I reached out to Bhupendra Khanal, the startup’s CEO, who confirmed ongoing talks for strategic investments with several companies, but declined to elaborate any further. This is what he had to say:

“At this stage I cannot accept or decline this news. Several companies have approached for strategic investment or acquisition, and serious talks are on. We will announce if something materializes.”

The rumors of Adobe being in talks to acquire Simplify360 were reported by Indian social media blog, Socialsamosa yesterday.

Simplify360 is among a growing breed of startups focused on gathering and parsing data from Twitter, Facebook and other social media platforms. A recent, notable acquisition in this space was that of Topsy, which was acquired by Apple for over $200 million last year.

Simplify360 is similar to Topsy, except that it goes beyond Twitter and crawls through terabytes of data that include Tweets, Facebook posts, etc., to offer customized analytics. Founded in January 2009, Simplify360 has been bootstrapped so far with an undisclosed angel investment from Amvensys Capital in December 2012. The startup has 25 people on its payroll, and it currently sifts through around 5 million posts and tweets every day that generates around 5 terabytes of data every week.

Another key differentiator for Simplify360 is that it now offers analytics in over 27 languages and has customers in markets like Korea apart from India, where around one-third of 200 million Internet users are increasingly posting social media conversations in over 30 languages.

So why would an Adobe or WPP be interested in this little, unknown startup based in Bangalore?

From what I gathered after speaking with several people in companies that could be potential acquirers, converting millions of Tweets and social media posts into real insights is the Holy Grail for marketeers, and tools such as Simplify360 help achieve that.

As this blog notes, Adobe’s interest also comes from the fact that it really wants to compete with Salesforce better, especially in the social media analytics space. Both Salesforce and Oracle have been doubling down on their social media analytics strategy through acquisitions. While Salesforce bought Buddy Media in 2012, Oracle acquired several companies including Vitrue and Collective Intellect.

Simplify360 founders and officials at companies in talks with the startup declined to share details on revenues, valuation or anything related. The startup makes money by offering its SaaS analytics tool for a monthly subscription starting at $500.

“The startup is profitable and should be able to decide on the strategic alliance or acquisition within 2-3 months,” a source familiar with the discussions said. He added that an investment banking firm has already been appointed.

Whether Adobe or somebody big finally acquires Simplify360 or not, it’s increasingly becoming clear that Indian startups have started getting attention of potential acquirers. As we wrote this piece about Little Eye Labs acquisition by Facebook recently, startups in big data space including Frrole are showing up on radars of Twitter and several others.

We are reaching out to Adobe, WPP and others to get their comments.

Editor’s note: Neil Sequeira is a general partner and managing director at General Catalyst Partners. He invests in alternative commerce, SaaS, online/mobile marketplaces and digital media.  He previously was with TimeWarner, AOL, CMGI, GoldmanSachs, Accenture and Goldenvoice. Follow him on Twitter @neil_sequeira.

Alternative Commerce is a piece of cake, right? After all, while big box retailers are suffering, fun things like “the Internet” and “mobile phones” make it easier to sell stuff to customers without the expense of stores and make a bunch of money. Just ask WebVan, Kozmo, eToys.com, or Pets.com. Okay maybe it isn’t that easy.

At the end of the day, even in the alternative commerce world, you still have to create, market, sell and deliver an actual product to consumers and make money in the process. That’s the rub. If you build a product, make sure your customers come and make sure it makes money.

Don’t fret and refocus your attention on the next “app” or creating the next “SaaS business.” Follow your alternative commerce dream, but also follow a few simple rules — many of which come down to business fundamentals — and you, too, can create a great company that doesn’t just ship products but focuses on creative business models, alternative distribution channels, brand and loving your customer. With the right recipe, it can indeed be a piece of cake.

1) Preheat the oven 

Bottom line, it’s all about the team. Our firm has been early investors in RueLaLa (GSI/eBay), Kayak (Priceline), Warby Parker, TheFancy and many other great companies. I am an early investor in The Honest Company (next-generation consumer products for babies/kids/families), NatureBox (subscription healthy snack product delivered to your door), Listia (the largest barter marketplace), StyleSaint (an online fashion brand that creates product based on social interaction/input) and Plum District (deals for moms).

The reason we invested in these companies is simple: the teams. The basic tenet of a successful alternative commerce company (or any early-stage business) is to start with great people. Get your key chefs in place before you preheat your oven and get cooking.

2) Mix Together Your Product and Customer

This is the part of the recipe where you can really get your creative juices flowing. Here are a few of the key ingredients.

Net Promoter Score. First introduced by Fred Reichheld in a 2003 Harvard Business Review piece, this can’t be more simple. The basic idea is to ask, How likely are you to recommend this product, company or service to your friends or colleagues? That’s it. This basic and fundamental idea is all that really matters. When this became clear to our firm a few years ago, it made clear why we believed in companies like Honest, Warby Parker, etc. – people loved what they were doing. When it comes to product, nothing else matters. Nothing.

Solving a Problem. Are you solving a problem or making something easier, e.g. not having to go to a store? Google Express, eBay Now and Amazon are making logistics and visits to the store easier (and getting a lot of information in the process!). You can compete with them and get blown out of the water or actually solve a problem they can’t. Create healthier products, deliver a differentiated service, build something special, delight your customers. If you don’t, they win.

Brand. Building a brand is hard. There are folks like Michael Kors and LuLulemon who have built amazing brands in the last few years (Kors has been a fashion icon for 20+ years) in the public markets. If you don’t want to build a brand, don’t try alternative commerce. Don’t. Walk away. People need to know you, need to love you, need to want you and have a personal connection to the brand. The only way to increase margins and grow a business is to own a brand. If you are selling someone else’s brand, you are dead.

3) Bake in business model and financials

No matter how delicious the ingredients are, the cake will not come out right unless you have the right temperature, cooking time, etc. Some key metrics to consider:

Business Model. The reason I call this alternative commerce and not e-commerce is that if you sell things online that exist in the offline/online world, you are dead. The margins will continue to drop until you can’t be profitable. Sure, you can try to get a better deal with UPS or FedEx but it won’t matter. You can try to get more margin from the manufacturer but someone will do better. If you’re not Amazon, you will lose. We all learned this with Pets.com in the first version of the web but people don’t remember. If you keep selling widgets that are available at Target or on Amazon you will lose.

Margins. When it comes to new alternative commerce ventures, if you sell product that has low margins, you will fail. Over time, other entrants will enter and your margins will drop even lower. Sell high-margin products (build a brand, have unique channels, offer high margin product). It’s that simple.

Customer acquisition. If you need Google and Facebook to acquire customers you are in a heap of trouble. The “crack” seems really great for a while because of the economics but over time those economics will change. In fact, we have seen they usually flip. If you pay for your traffic, other people will fast follow and that’s a problem.

Customer acquisition cost/lifetime value. When we started investing in alternative commerce 14 years ago, we thought it was a metrics-driven business. It is not – you need a team, killer product and brand. The numbers change the longer you stay in the business. That said, the cost to acquire a customer and the lifetime value of a customer are important.

If your CAC to LTV is 2-4X (i.e. it costs $10 to acquire and it pays back 20-40 before folks churn) don’t keep going. One issue is you need to acquire. The other issue is that you are too close to the sun when acquisition increases. We tend to focus on 5X+ businesses. We may be wrong but I would rather be wrong here.

These are the basic building blocks of my favorite recipe – no secret sauce here. In fact, all of the ingredients for success in alternative commerce are really the same fundamentals that have held true for years when building a business. The good news for new entrants is that the big box retailers are dead or dying. If you want to disrupt them, build an amazing product and brand that solves a real problem for your consumers and reaches them in a creative way. It’s a piece of cake, right?

[Image via Shutterstock]

Yahoo could be getting back into the search game. Its long-suffering deal with Microsoft has underperformed, making recent revelations that the company is working on building new search products hardly surprising.

If the projects are serious — meaning they are more than experiments or attempts at leverage for the coming discussion it will have with Microsoft on per-search revenue — Yahoo could be working to create a product that will replace nearly one-third of its current revenue.

In its calendar third quarter of last year, Yahoo earned 31 percent of its total revenue from the search deal with Microsoft.

As a percentage of its revenue, the Bing search deal is of growing importance to Yahoo. For the nine months ending last September 30, 30 percent of the company’s revenue came from the deal, or slightly less over the nine-quarter period than the last quarter reported.

More dramatically, its 2012 third quarter — comparable to the 31 percent number — saw 27 percent of its revenue come from the Microsoft deal. And in the nine-month period ending with the third quarter of 2012, Yahoo earned a more modest 24 percent of its top line from Microsoft.

So, 24 to 27 to 30 to 31 percent. That’s a steady progression.

What is driving that momentum, given that Yahoo is consistently losing search market share? I’d estimate that its other revenues, which are declining, are doing so more quickly than income from the Microsoft deal. Recall that Microsoft last year re-upped its revenue guarantee with Yahoo in regards to its search agreement for the U.S.

Financially, therefore, the Microsoft deal is something of a boon for Yahoo, providing revenue stability in a time of transition for the latter company.

That’s the nice way to put it. In reality, Yahoo needs that firehose of Redmond dollars to cover for it as it uses future Alibaba money to (hopefully) buy revenue momentum. So far that isn’t working, as we recently saw.

And Yahoo may be working to cut this income flow and forge a new path for itself. You could call that bold. But there is a fine line between boldness and overzealousness (leadership, you could argue, lies in between).

Microsoft and Yahoo both declined to comment for this story.

While that may be the case, it’s worth keeping in mind that Yahoo has old search chops, Mayer is brilliant, and the company is on a decent personnel footing. It could pull off a transition back to search. And, perhaps, Yahoo could deploy enough of that Alibaba cash to snag a few Googlers to pull the operation together.

Yahoo was said to complain last year that revenue per search was actually worse with Microsoft under the agreement than it had been when the company used its own technology. That’s a point in favor of Yahoo trying again. The company may be able to opt out of the deal in mid 2015.

But search, as the saying goes, is hard. Microsoft, a company with a few good heads in it, has spent years — and billions — building Bing. 

And despite that work and treasure, Bing has yet to mature to the point in which Yahoo and Microsoft didn’t need the search revenue guarantee. That means that Bing was monetizing at below the set threshold, forcing Microsoft to fork over more cash to keep Sunnyvale on board.

So, after billions and years, Microsoft’s search technology still isn’t so good at making money.

For Yahoo, that’s the mission at the moment. It needs to grow its revenue. And, at this precise moment, it appears that the company is moving instead to replace a stable, and likely renewable revenue stream.

Top Image Credit: Flickr (Image cropped)

The increasingly popular Sunrise calendar app faced a bit of a brouhaha last week, after a couple of well-respected developers (namely, Neven Mrgan and Instapaper creator Marco Arment) pointed out that the application asked the user to punch in their iCloud credentials with little indication of what happened to them next.

Given the amount of sensitive data that tends to be transmitted over iCloud (iMessages, backed up photos, email, etc.), such a request was iffy, at best. It’s certainly not the sort of thing you want to become the norm.

Making things worse, the company was in turn taking those credentials and transmitting back them to their server (though they note that they were not storing them.) They were sending the credentials in a secure way — but still: if it’s at all avoidable, sending important credentials back to the mothership isn’t good practice.

This morning, Sunrise pushed out a patch that makes things a little better. They’ll still need you to punch in your credentials, which is a bummer — but now, at least, they’re handling authentication within the app itself. Instead of sending your username and password back to their servers, they send a unique token that allows them to access your iCloud data without ever sending your actual username/password off of the device. And if you decide that you don’t want Sunrise to be able to access your data? Just change your password, which renders the token useless.

It’s not a perfect solution, as it does still require the users to trust a third-party with some pretty precious data. In this case, since Sunrise is now being quite transparent about how they handle the data, that’s fine. But it’s still not something that apps should be getting users comfortable with doing. Until/unless Apple builds in some sort of iCloud permissions dialog that allows for the user to grant a service like Sunrise access to data (sort of like the way Facebook handles Facebook logins within apps), however, this is the safest route they’ve got apart from.. you know, not existing.

It’s been just 9 days since concerns about Sunrise’s methodology were raised; good on them for moving quick.

In this week’s episode of Ask A VC, Manatt Digital Media Ventures’ Peter Csathy joined us in the studio to talk about the return of content, his firm’s investment strategy and more.

One of the topics Csathy and I talked about was the renaissance moment for content, whether that be video, long-form, or social content. Csathy himself previously was the CEO of Sorenson Media, which provides encoding tools and a platform for video distribution for media companies and online publishers and also was the CEO of digital video startup SightSpeed, which was acquired by Logitech.

Why is content back? And what are the distinct properties that are driving viral content? Csathy answers those questions and more in the video above.

Peer-to-peer lodgings marketplace Airbnb has been focused on finding ways that it can help its hosts improve the quality of experience for guests that stay in their homes. As part of this effort, the company is trialing a low-cost cleaning service for some hosts on the platform.

According to an email sent to a host in the San Francisco Bay Area that was forwarded to TechCrunch, Airbnb is piloting a program that will make cleaning services available to some people who make their homes available on the platform. The email claims those services will be “affordable, easy to schedule, and can be tailored to include amenities such as linen service and gift baskets.”

In a statement from an Airbnb spokesperson, the company confirmed the trial, saying: “We’re always testing ways to make the experience on Airbnb better. This is a test we’re looking at in one market.”

Airbnb is working on a number of ways in which it can better support the people who list their homes on the platform. It recently brought on a new head of hospitality, Chip Conley, and created a Hospitality Innovation Lab in Dublin aimed at determining best practices for hosts.

It’s also introduced a new suite of mobile apps that are aimed at making the listing process easier. At the same event in which those apps were unveiled, Airbnb announced that it would relaunch Airbnb Groups to enable hosts to communicate and share tips with each other, and even toyed with the idea of offering up smartphones to hosts as a way to improve response times to guests and boost overall bookings.

But chief among the ways that Airbnb hosts can improve the quality of stay for their guests is through cleanliness of the spaces that they list. Those who frequently have Airbnb guests already know this, and many so-called “super hosts” already schedule regular cleaning sessions between stays.

Doing so can be expensive, however, and can eat into the money that hosts make — especially those who rely on income from Airbnb to help them pay their rents. At $55 for a three-hour cleaning, the price is slightly below what you might get from a service like Homejoy, which generally charges $20 an hour (in San Francisco, at least). Individual cleaners can run even higher, depending on the size of the home or how much cleaning is needed.

Offering hosts a somewhat discount price is a nice perk, especially for those who regularly rent out their homes to other members of Airbnb. It also improves the overall quality of their stays, could lead to better reviews, and overall increase the likelihood that hosts will have future guests.

Full text of the email sent to our host contact below:

Hi [XXXX],

We’re excited to invite you to try a new cleaning service we’re piloting for a select group of Airbnb hosts! Airbnb Cleaning is affordable, easy to schedule, and can be tailored to include amenities such as linen service and gift baskets, too. Pricing starts at $55 for a 3 hour cleaning.

We built this service to address what Airbnb guests care about most (things like odors, stray hairs, and refrigerators!). We also worked with hosts like you to understand how to cater to personal hosting styles and home setup preferences. We’ll save your preferences and set up your space exactly the way you want it every time.

Click here to learn more!

If you have any questions, simply reply to this e-mail and we’ll answer it promptly.

Happy hosting,
Airbnb

Apple’s plans for iOS 8 focus on redefining health tracking via mobile devices, according to a new report from 9to5Mac, which has a terrific track record when it comes to rumors it has sourced itself. The report details a new marquee application coming in iOS 8 called “Healthbook” that monitors all aspects of health, fitness and workout information, including vitals monitored via the new iWatch, which is said to pack a bevy of sensors and to be “well into development” according to 9to5Mac’s sources.

The health monitoring app called “Healthbook” will come pre-installed on iOS 8, which, if true, would be a huge blow to third-party apps including those made by Fitbit, Nike, Runkeeper and Withings just to name a few. It would track and report steps, calories burned, distance walked and more, including weight fluctuations, and blood pressure, hydration levels, heart rate and more.

Apple’s focus on health in iOS 8 is given credence by a number of new reports from this week, including the news from the New York Times earlier today that Apple execs met with the FDA late last year to discuss mobile medical applications. Apple also reportedly hired Michael O’Reilly, M.D. away from a position as Chief Medical Officer of Masimo Corporation in July 2013. O’Reilly is an expert in pulse oximetry among other things, which is used to non-invasively take key vitals from a user via optical sensors.

9to5Mac’s report details functionality of the proposed “Healthbook” app, which, as its name suggests, takes a lot of cues from Passbook. It’ll offer swipeable cards for each vital stat it tracks, letting users page through their medical and health information. The report cautions that this functionality could be taken out prior to the final release of iOS 8: With the FDA’s involvement, one concern might be getting the necessary approvals to market the software as a potential medical aid.

As for the iWatch, the new report doesn’t add much in terms of firm details, but it does suggest we could see a release before year’s end, and offers that it could feature sensors that provide data to Healthbook. That app could also use existing third-party monitors and devices designed for iOS to source data, however. One more tidbit about the iWatch suggests that maps will be a central feature of the device, and navigation on the wrist is actually a prime potential advantage of smartwatch devices that has yet to be properly explored.

We’ve reached out to Apple for comment on these developments, and will update if we learn anything more.

The clothes may be cheap, but prices for tech companies launching mobile and web-based marketplaces to sell secondhand and consignment clothing keep going up. 

The latest company trying to get people to pop their tags virtually is Vinted, which raised $27 million in its second institutional financing – one of the largest rounds ever for a Baltic-based startup.

Fresh financing from Accel Partners and Insight Venture Partners for the Vilnius-based startup comes after Accel invested $6.6 million into the company just over a year ago to port it from a web-based application to a service primarily for mobile devices… and bring its service to the U.S.

Vinted launched in the U.S. in September 2013, after five years spent expanding in Europe, and will use its new cash hoard to develop its business here and add to its 110 employees both in San Francisco and in its Lithuanian headquarters.

“We started the company as a project five years ago that was really a hobby project,” said Vinted chief executive Justas Janauskas, in an interview. Initially it was designed to be a website where girls in Vilnius could swap or sell mid-priced clothes from brands like Zara and H&M. But with an early angel investment from Lithuanian serial entrepreneur Mantas Mikuckas, who joined as chief operating officer, the company professionalized and grew its European presence.

Vinted operates three different brands internationally:  manodrabuziai.lt in Lithuania; kleiderkreisel.de in Germany; and  votocvohoz.cz in the Czech Republic, but going forward will consolidate everything under the Vinted label.

In the U.S., Vinted is entering a very crowded market. Companies like Twice, which raised $18.5 million earlier this month from Andreessen Horowitz and a host of others; or Poshmark, which raised $12 million in a round led by Menlo Ventures; and thredUP, backed by Highland Capital Partners, Redpoint Ventures, and Trinity Ventures, are also competing in the category.

Unlike Twice, which operates as a virtual storefront for used clothes, housing them at its own facilities and shipping them to buyers, Vinted is more of a peer to peer marketplace and social network, according to its CEO.

Globally, online consignment and secondhand stores have raised at least $109.2 million in financing, according to data from CrunchBase.

So far, the company has 3 million members around the world and has had 14 million listings managed from offices in San Francisco, Paris, Munich, Warsaw, Prague, and Vilnius, on an app available on both iOS and Android.

The move to mobile proved to be a good one for the company, Janauskas said. “The customer retention is better; the user experience is way better than on the desktop. So naturally the company converted from desktop to mobile,” he said. 

For Accel, the company’s value was clear from the moment the partners first heard about the site, said Michiel Kotting, a partner working in Accel’s London office. “[It’s] half social network and chatting and half clothing exchange,” Kotting said. “They play into the same desire for second-hand clothing and a desire for the consumer to have a voice in fashion.”

That may be true, but judging from recent investments it seems that venture capitalists also want to have their voice in fashion  – even if it’s just secondhand. 

Photo via Vinted. 

LARPers rejoice! A new Kickstarter project, called Sabertron, will allow you and your fellow followers of the great goddess of the Whispering Eye to fight to the death using wirelessly connected foam swords. The swords, which cost $99 for a two-weapon set, have rings of colored lights around the hilt that note when you’ve been hit by other players. Once the lights go out, you become one of the the Eaten Ones, forced to roam the World of the Undead in the Nevermere for all eternity until the kiss of Princess Mooncake brings you back to life or you just have to sit out the round and drink a Capri Sun over by the backpacks.

Created in Austin by a team of three former AMD engineers, the group is looking for $195,000 to complete the swords, which contain an accelerometer and NFC system to tell if two swords hit or they hit a player. They are also working on a special LARPing mode with a bright, bold chest plate that displays your current health. One of founders, Tim Reichard, said “LARPing refers to Live Action Role Playing and is mostly associated with medieval renaissance enactments… think of guys and gals in the park or woods doing sword fights and medieval activities.”

“Kind of geeky, I know,” he added. “Nowadays, LARPers create Boffers (home made wooden swords) to use. Our product isn’t only for LARPers, it is also for anybody who wants to play sword fight and have a detection system that lets the participants know who won. Our Sabertron is also littered with LEDs and has some impressive sound.”

“I came up with this idea when playing in the back yard with my kids about five years ago,” said CEO David Lynch. “I created a few swords from PVC pipe and foam, and it was a lot of fun, but the kids lost interest because it wasn’t interactive. I am a computer engineer and I can do anything I set my mind to do. I finally set my mind to do this and built this system to allow the swords keep score electronically.”

The swords have an on-board display that shows stats and allows you to set game play modes including “One Hit To Win It” and “Eternal Struggle” in which “each hit depletes one to three bars of health, depending on the strength of the hit and the sensitivity setting in the options menu. Ranges from two hard hits, to six small glancing blows will win the game.”

So slash away, Paladins Of The Ancient Order Of The Three-Eyed Sloth! Your LARPing will be improved tenfold by these exciting swords and as you wade through the marshes of Darkwood, on the hunt for the evil Surgoron, keep your weapon at the ready and your wits about you for, as you know, Paul from your wargaming group likes to bop you in the nards.

In the first earnings call since Evan Spiegel rejected Zuck’s $3 billion offer to buy Snapchat, the Facebook CEO sent a very clear signal to competitors.

“Our vision is to create a set of products that let our users share with any audience they want,” said Zuck. “Not everyone wants to share with all of their friends at once. A lot of the new growth we see is from giving people power to share with different, separate groups of people.”

Three products, in particular, help Facebook fight off Snapchat: Messenger, Instagram, and Groups.

Zuckerberg announced that Facebook Messenger, which was revamped in November to be much faster, has grown by 70 percent in the past three months. Meanwhile, Facebook Groups have grown to 500 million users, with Zuck calling them a “core product.”

And then there’s Instagram, Facebook’s golden ticket. The photo-sharing service introduced Instagram Direct in December to give photo-sharers control of the audience for any picture they’d like.

All of this, obviously, is a push against the market and mindshare controlled by Snapchat, which is growing at a rapid clip. Users send more than 400 million snaps per day on the service, which has raised more than $123 million in funding since launching in 2011.

The app lets users share disappearing photos with individual friends or multiple users. Not only does the content disappear (freeing them from any concern that Mom will see what was said on the internet), but it gives users total control over who sees what they share, on a case by case basis.

Instagram Direct tried to mimic this behavior, though it seemingly hasn’t gotten the same traction.

Even if growth isn’t a threat (yet), Snapchat’s stubborn CEO certainly is.

He’s the first young, driven wunderkind since Zuckerberg himself. Almost 25 and fresh out of Stanford, Spiegel even has his own frat-boy drama lawsuit on his hands, with a scorned founder suing Snapchat for a third of the business. If Zuck’s throne has a usurper, it could very well be Evan.

Snapchat is one of very few (successful) social apps that isn’t reliant on Facebook in any way. Snapchatters find their friends through the Contacts app in the phone. There is no Facebook Connect. No Facebook Friends. No sharing to Facebook. Inside Snapchat, there is no Facebook.

The shift has been a relatively slow one, but over the course of the past few years, Facebook has lost its swagger with teens and younger demographics. Even Obama knows it. No one going through puberty wants to share the internet with their parents. Snapchat, entirely independent of Facebook, has given teens a playground.

And Facebook has failed, thus far, to seal that leak.

By the time Snapchat caught Facebook’s attention, it was too late. The December 2012 launch of Facebook Poke (a shameless Snapchat clone) was a total flop.

And once Facebook was vulnerable, reportedly offering $3 billion for the service, Spiegel said no.

Today Zuck has responded, albeit somewhat subtly. The stats around Messenger alone show that Facebook is ready to fight for the kids, whether the social network needs them or not.

After all, 1.2 billion monthly active users certainly isn’t worrisome. Snapchat is still, very much, a David to Facebok’s Goliath.

Going forward, Zuck plans on separating Messenger and Groups even more from the central Facebook app.

“If you think about the overall space of sharing in communication, there isn’t just one thing that people are doing,” said Zuck. “People want to share any type of content with any audience they want. Facebook has always had a mission of helping people share with any audience, and historically that has always been through a single app.”

“Messenger used to feel like a feature of Facebook, but we’re making it more of a standalone app,” he added. “We’ve even taken it out of the main app, giving it room to breathe as its own experience. We’re now focused on making that really good and adding to it.”

In other words, “here’s Facebook minus your parents.”

What say you, Snapchat? It’s your move.

An update in the ‘@N’ account hacking case has just come through from GoDaddy, one of the companies involved in the somewhat convoluted social engineering case.  The company admits that one of its employees was ‘socially engineered’ into giving out additional information which allowed a hacker to gain access to Naoki Hiroshima’s GoDaddy account.

The hack, which we detailed in a post earlier today, was performed by calling up PayPal and GoDaddy to gain access to Hiroshima’s personal email, which was then used to extort the @N Twitter user handle from him.

Hiroshima outlined the hack in a post on Medium, which garnered a lot of attention. We received responses from Twitter that the matter was being looked into and PayPal was spurred to issue a denial that it had provided credit card information, and to note that its employees were trained to avoid social engineering attacks.

Social engineering is a method of ‘hacking’ in which attackers utilize personal or not-so-personal information to impersonate the rightful owner of an account. They call up the company in question and engineer a ‘reset’ of the account permissions that allow them to take over.

In Hiroshima’s case, the target was simply his Twitter handle, but it could easily be things like bank accounts or websites.

GoDaddy Chief Information Security Office Todd Redfoot issued TechCrunch the following a statement about the hack:

Our review of the situation reveals that the hacker was already in possession of a large portion of the customer information needed to access the account at the time he contacted GoDaddy. The hacker then socially engineered an employee to provide the remaining information needed to access the customer account. The customer has since regained full access to his GoDaddy account, and we are working with industry partners to help restore services from other providers.

Redfoot also says that GoDaddy is “making necessary changes to employee training to ensure we continue to provide industry-leading security to our customers and stay ahead of evolving hacker techniques.”

The sour note here is that these techniques really are nothing new. As we noted in our piece earlier today, some very high-profile hacks have been accomplished over the last couple of years using these kinds of techniques. Not the least of which was a widely read case in which Wired writer Mat Honan’s accounts were nearly decimated by hackers employing social engineering techniques.

If anything, cases like Honan’s and this one about Josh Bryant (@jb)’s hack shared via Daring Fireball should have thrown up red flags for any internet company dealing in identity. These are not new tactics and they should be guarded against as a very basic precaution.

More to follow…

Image Credit: Hans J E