Category: Tech news

Evergage, the start-up that launched at TechCrunch Disrupt New York in 2012 under the name Apptegic, has been quietly building its business for a year and is now launching a freemium model to help companies improve the click-through rates on their websites without the need for hiring a developer.

Though the name has changed, in part because people associated it too closely with mobile apps, Evergage co-founder and CEO Karl Wirth said that the product is fundamentally the same. Evergage looks at behavioral click-through data to identify which website features a customer is focusing on, and which aren’t getting many hits.

Using that data, marketing teams can then use a visual editor to build floating messages on top of the site to draw users’ attention to a particular feature. And depending on who the visitor is, they might be shown different pop-ups.

“We’re rolling out predictive analytics,” Wirth said. “We make suggestions to the market about what they could be doing. We’re able to say, we’ve seen people who have done these actions, you’ve shown them this message, and they’re converting to the goal at a higher rate. We suggest that you target people like them.”

If, for instance, a company wants their users to click through a particular promotion, they might have a call-out message open on top of it when the user is about to close the website tab. Another common and effective message is a membership sign-up box that pops up when the user enters the site.

The freemium product, called Evergage Lite, allows users to create up to three message boxes, which Wirth said is all some companies need. Letting businesses prove Evergage for themselves with the free basics seems like it will be a good way for Evergage to drive its own conversions to upgrades. For those who want to up the ante to 40 or 50 boxes, pricing is based on the site’s traffic.

Especially on websites that use log-ins, it’s crucial to not show a user the same information twice, Wirth said. If you have a banner asking visitors to sign up for a webinar, that banner should go away after they’ve signed up. And yet some sites keep it up, wasting the opportunity to push further conversions in a return visit from the user.

Adobe offers similar products with Adobe Digital Marketing Suite and Adobe Target, but Wirth said that their level of complexity often requires a developer to be involved, which racks up expenses for the company. Evergage aims to be a more cost effective alternative, so that marketing departments can manage the site themselves.

As Apptegic, Evergage raised a $3.1 million seed round in the fall of 2011 from Point Judith Capital, Advanced Technology Ventures, and a number of Boston angel investors. Wirth said the company is running on revenue from its paying customers for the time being, but that they are planning to raise a Series A in the near future.

The global PC market is shrinking, and continues to trend downward according to recent numbers, which means there are a lot of concerned device-makers looking around for what to do next. Acer is one of those companies, and the firm is looking to pin the blame on Windows and find a better option, according to the WSJ. That might be a very popular tune in the next few years from other OEMs like Acer, and that’s great news for Google.

Acer is looking to mitigate its PC market losses by growing its non-Windows business, and by doing that fast. Android is the logical choice for smartphone and tablet plans, and Acer President Jim Wang told investors during his company’s quarterly results conference call last night that he “sees a new market there for Chromebooks.”

Already, Acer makes the C7 Chromebook, a $199 device that has a lot in common with netbooks of the past but that runs Chrome OS, Google’s desktop operating system that pretty much takes the Chrome browser and extends its capabilities somewhat. Chrome OS and Android devices are expected to make up around 10 to 12 percent of Acer’s revenue by year’s end, per Wang, and that could climb as high as 30 percent by the end of 2014. Chromebooks made up around 3 percent of Acer’s total PC shipments in Q2 2013, which doesn’t sound like much but shows impressive growth for a largely experimental OS that’s launching into an extremely entrenched market.

The situation is similar to what other PC makers are seeing. Asus Chairman Jonney Shih basically said Windows RT isn’t helping out with its slowing PC sales, and the company is clearly seeing enough interest in its Nexus 7 devices to partner up with Google for another round with the new version launched just this past month.

In the past, Apple has been the beneficiary of a slumping PC market; iPad sales have progressively increased as PC sales have slowed, making it seem like there’s a direct correlation there that would see Apple’s tablets satisfy customers to the point where they’d eventually mostly op for iPads instead of Windows-based notebooks. But iPad sales were actually down last quarter, for the first time ever. That might just be attributable to a new release cycle that saw no new iPad hardware released in early 2013, but it could also be a sign that there are others who stand to gain from the PC sales slump.

Tablets based on Google’s mobile OS have been slow to find their audience, but they’re picking up pace, in a way that Windows hasn’t been able to match in that market. Chrome OS devices might still be a tiny fraction of the notebook market, but they at least represent a different approach with seemingly growing appeal – something that can’t necessarily be said for Windows 8 just yet. If consumers are souring on traditional PCs, it makes sense that OEMs would put more stock in something like Chrome OS that has a chance to accomplish something different, than in the more or less business-as-usual approach of Microsoft, which is actually peeling back some of the more innovative aspects of its Windows 8 platform with the upcoming 8.1 update.

Google has a number of things going for it in terms of being able to capitalize on PC industry slowdown: Its licensing model means it can harness the need of existing OEMs to put their existing infrastructure to good use; it already powers the most successful mobile operating system on the planet, in terms of broad adoption; and it’s a name and brand that has recognition and trust worldwide.

Once upon a time, there was no reason to take a risk on experiments like Android for tablets or Chrome OS for notebooks for OEMs like Acer, as Windows was a comfortable and secure platform investment from which to milk revenue. That’s no longer the case, and that could be a very good thing in terms of shaking up a mostly tired consumer PC device market.

Baseball season is in full swing and football is around the corner, but there’s one other competitive sport that’s heating up. The TechCrunch Meetup + Pitch-Off is invading San Diego on Tuesday, August 22.

That’s right, folks. It’s game time!

The event will start at 6pm and last until 10pm at Block 16.

We’re looking for all the best and brightest entrepreneurs of Southern California to hop on our stage, pitch their product in sixty seconds, and ultimately be judged by their peers and a panel of expert judges.

These startups get no presentation materials or demoes — words only in a minute flat. If that sounds like something you’re interested in, apply to be a part of our Pitch-Off (form embedded below), and if accepted, you’ll get a one-on-one Office Hours Session with Greg Kumparak, Matt Burns, or myself.

We will have 3-5 judges, including TechCrunch writers and local VC’s, who will decide on the winners of the Pitch-off. First place will receive a table in Startup Alley at the upcoming TechCrunch Disrupt. Second Place will receive 2 tickets to the upcoming TechCrunch Disrupt. Third Place will receive 1 ticket to the upcoming TechCrunch Disrupt. Companies chosen to participate will be notified one week before the event.

But if you’re not down to compete, that’s just fine. We’re meeting up to talk tech, build the community, and throw back a few cold ones. That said, the $5 ticket comes with a drink ticket and the requirement that you are 21+.

For more information on sponsorship packages and to discuss becoming a sponsor, please contact [email protected].

It’s difficult to keep track of what the NSA does and doesn’t do, and today, the New York Times piled on. Citing “senior intelligence officials,” the paper is reporting that, under a broad interpretation of the FISA Amendments Act, the NSA intercepts communications of U.S. citizens whose communications cross borders and mention foreign targets. You don’t have to communicate with someone being targeted directly to potentially have the NSA collect and search your email.

So, if in an email to a friend in, say, France, I were to mention someone who the NSA is keeping tabs on, I could be the subject of extensive NSA surveillance of my email and text communications — legally, to boot, in the eyes of the government.

The NSA has lied, repeatedly, concerning its collection of records, content, metadata, and the like of American citizens. And, frankly, it’s become a complex enough situation that it is slightly hard to parse truth from half-truth from downright lie. However, James Clapper, current Director of National Intelligence, lied to Congress — and you — about the NSA not collecting information on American citizens. All that has happened since that moment is that the depth of his lie has increased; previously, it was phone metadata that became known as a collection target. The Times’ report goes deeper in damning Clapper as mendacious.

And who can forget the commentary of Rep. Mike Rogers, who said that Snowden was lying when he described the XKeyscore program, which was later leaked and confirmed by the former NSA director? We could go on.

The new dodge is somewhat simple. Break down the NSA’s activities into two parts: collection and the search of that information. This allows the government to occlude their activities. The Times’ piece has a perfect encapsulation of the sort of idiotic verbiage that we are currently being spoon-fed: “In carrying out its signals intelligence mission, N.S.A. collects only what it is explicitly authorized to collect.”

That’s from Judith Emmel, an NSA spokesperson. She continues to tell the Times that “the agency’s activities are deployed only in response to requirements for information to protect the country and its interests.” For more on the collection and search false dichotomy, watch this.

The crux of the search-collection split is that the NSA can hide behind search oversight rules as a canard to collect, en masse, the communications of any or all American citizens. They should not be granted this wiggle room. The two practices are inherently linked, and should be treated as part and parcel of the same dream.

Today the Times did us a favor by outlining a precise mechanism with which the NSA helps itself, as it deems fit, to the private communications of U.S. citizens, with an increasingly low level of legal requirement. Mention something in an email to, hell, Canada, that raises an NSA flag and you may have lost the right to privacy. I can almost understand the logic that led the agency to this point, but I must protest.

The revelation isn’t shocking in the face of former intelligence operatives claiming that the NSA goal is to “collect it all.” It does, however, grant us a view into the thinking of the NSA and the larger government intelligence operation. And that matters.

The Snowden effect continues apace.

Top Image Credit: Casey Newton

One of Mozilla’s lesser-known projects is Persona, a login system that aims to eliminate site-specific passwords so you can log in with your existing email accounts without having to type in a password. Its aim is somewhat similar to what Google, Facebook and others are doing with their login systems, though Mozilla’s philosophy is obviously quite different.

Persona uses email addresses to authenticate users and starting today, all Gmail users will be able to use Persona to log in to the sites that support it (and to be honest, there aren’t all that many yet) right out of the box without having to sign up for it in the first place.

As a Mozilla spokesperson told me, the company did not work with Google on this project. Instead, it is using Google’s publicly available OpenID endpoint to “bootstrap a Persona transaction.” It’s worth noting that for now, Persona only supports regular Gmail addresses. While the team is interested in adding support for Google Apps accounts, it’s not clear when it will start supporting these.

Today’s announcement comes almost exactly four months after the company announced the same feature for all Yahoo logins. Today’s addition of Gmail, Mozilla says, means Persona now supports “more than 700,000,000 active email users” – or “about 60-80% of people on most North American websites.”

In most cases, signing in to sites that support Persona just takes a click or two. The authentication is based on public-key cryptography. Unless you are using a Yahoo or Gmail address, you will still have to sign up for Persona to get started and run through the usual email verification process. For these two services, however, Mozilla now uses what it calls an identity bridge, which essentially uses the email provider’s existing OAuth gateway or OpenID endpoint to verify your identity. As long as you stay logged into your Yahoo or Gmail accounts, signing in to third-party sites that support Persona will just take a single click.

Mozilla will use Persona in its own Firefox OS, but outside of the company’s own services, Persona hasn’t gotten much traction yet. Indeed, you’ll probably be hard-pressed to find a site that uses it, so if you want to give it a try, head over to Mozilla’s Webmaker or its 123done demo. Given how easy Persona is to use from a user’s perspective, it’s a shame that there aren’t more services that support it. But maybe now that millions of new email addresses will just work with it out of the box, it will give developers more confidence in the system and get them to support it.

Mainstream music fans don’t want to constantly choose what to listen to, so streaming services are embracing radio. The latest is Rdio, whose new Friend FM turns your friends’ listening activity and social connections into non-stop streams. It’s also added a traditional Pandora-style You FM station thanks to data from The Echo Nest. Together they could let you productively leave Rdio on in the background.

While Pandora popularized adaptive online radio, it’s becoming an essential feature for all music services. Spotify added radio at the end of 2011, and Apple is gearing up to launch iTunes Radio alongside iOS 7 this fall.

The fact is that people listen to music in different ways. Sometimes you want to hear that one particular song or album, sometimes you want to dabble and discover something new, and sometimes you want to just fire-and-forget a radio station while you work. The more use cases a music service can cover, the more likely people will stick with it, endure ads, or pay for a subscription.

Usually, adaptive radio stations build themselves off of your listening habits. That includes what you played, thumbs up or downed, and saved. This is how Rdio’s new You FM works, though it also factors in your Facebook Likes and Twitter Follows.

Rdio’s overhaul of Stations also lets your tune into any of yours friends’ You FM stations. Friend FM could get you out of your comfort zone and stumbling upon new artists you can then cue up on-demand. Maria FM could score me some new yoga music, while Alex FM would rock my bones with the latest new metal. Rdio says “It’s like flipping on the car radio and knowing every DJ.”

The cross-platform streaming service has also built a more immersive player for Stations, a better navigation system, Stations for genres, and an Auto-Play radio based on the last song or artist you were last listening to.

Rdio has some catching up to do. It doesn’t reveal its user counts but some peg it as much, much tinier than direct competitor Spotify which has 24 million active users, over 6 million paying subscribers, and brought in $533 million in revenue in 2012. While many say Rdio’s design is better, its marketing hasn’t been as aggressive and it fractured its attention to launch the video streaming service Vdio.

Rdio needs to lock in more casual listeners before iTunes Radio comes out or Spotify gets any bigger, otherwise it could be stuck with its stylish but small user base. You can’t make a business just selling to hipsters unless you’re Pabst Blue Ribbon.

Prepare yourself for an onslaught of small, clever, software driven hardware projects because former members of the iRobot team have just started Dragon Innovation, a manufacturing services and crowdfunding firm that will help small makers go from garage to factory.

Co-founded by Scott N. Miller and Herman Pang, the group has decades of experience in hardware design and manufacturing. Miller worked on the functional prototype of the Roomba and then led the team to ramp up production and sales. He supervised the building of 3 million Roomba units. Pang worked on Hasbro’s FurReal friends and then helped build the Far East office of iRobot with Miller.

The company isn’t just another incubator. The plan is to run a crowdfunding platform that allows users to get funded and then work with DI to produce their hardware to scale.

“Dragon Innovation’s crowdfunding platform is exclusively focused on hardware and allows a broader category within Hardware than some other sites including Pet Tech, Home Security, and Home Health,” said Miller.

The company raised its round from Flybridge Capital Partners and Foundry Group as well as the Box Group.

DI will use its experienced team to make sure products actually get delivered, a breath of fresh air for anyone who has waited for months for a gizmo.

“Dragon takes on detailed vetting of each team and project, so that if the funding threshold is met, the team will deliver on the promise to its backers. This step ensures real people with real products are behind each project,” said Miller. “Furthermore, Dragon’s network of service providers, investors and experts in relevant fields is another differentiator.”

“In the old days, firms would spend millions of dollars over the course of multiple years in stealth mode, then have a big product launch backed by a significant market spend to drive demand,” he said. “In some cases, this went well, and the product sold. In others, it did not.”

The company is launching its crowdfunding system later this year.

DI’s goal is to capitalize on this trend of small, agile hardware manufacturers that can create cool products and, at the same time, raise awareness of the issues with hardware manufacturing. But bringing their expertise to bear on the big problems, maybe they can prevent another Ouya?

In less than a month, Snapchat CEO and co-founder Evan Spiegel will appear on the TechCrunch stage, talk about what it’s like to make one of the most popular photo apps in the world, and then disappear without a trace twenty minutes later.

But boy! It’s going to be a really interesting twenty minutes.

Spiegel has gone from being a student at Stanford University to creating a totally new form of social networking and messaging over the course of a couple years. And it hasn’t gone unnoticed. Snapchat is all the rage with the younger demographic, and it’s even catching on with the older crowd, with over 200 million messages per day flowing through the service.

The company recently landed an $80 million Series B at an $800 million valuation, and yet a monetization strategy still hasn’t been revealed (though I’ve posited about it many a time). But finally, Evan and I will get to sit down face-to-face to discuss his take on ephemeral messaging, building a household name out of nothing, and, well… life.

Spiegel, a first-time Disrupt speaker, will be taking the stage along with some Disrupt regulars like Marc Benioff and Marissa Mayer.

Disrupt SF takes over The San Francisco Design Concourse from September 7 to 11. Tickets are currently on sale here. If you are interested in becoming a sponsor, opportunities can be found here.

By the way, if you’re curious as to how Spiegel pulled off a Black and White photo in Snapchat (above), try googling “Snapchat secret features.”

---

Evan Spiegel
Snapchat, CEO

Evan Spiegel studied Product Design at Stanford University while building Snapchat, a real-time picture messaging app. Snapchat users have shared over five billion unique images through the service since January 2012, making Snapchat one of the Top 10 apps in the iTunes AppStore.

Social analytics company Dachis Group is launching a new feature that CEO Jeff Dachis (who previously co-founded the agency Razorfish) described as “real-time marketing in a box.”

To illustrate the importance of this tool, he pointed to what has become the favorite example among social advertising types (or at least the ones I talk to) — Oreo’s “You can still dunk in the dark” ad that it tweeted when the power went out at the Super Bowl. Dachis Group’s new capabilities mean that other brands can have their own Oreo-style moments, where they can jump into relevant conversations in a timely fashion.

“Real-time is really the tip of the spear,” Dachis said. “Marketing is moving so much faster now. …[It] needs to be attuned to where people are and the trends and the activity that is actually happening, rather than hoping that you’re at home watching CSI.”

CTO Erik Huddleston gave me a demo of the new tool, saying that it’s not just looking for what’s hot among the general Twitter user base or obvious topics that a company wants to track. Instead, it looks at the relevant audience for a brand and figures out what they’re talking about, and it also examines the “velocity” of the conversation and the likely lifecycle — whether the conversation is going to keep building or die out in a few hours.

More broadly, Huddleston said Dachis Group’s new features accomplish three tasks — it helps customers identify trending conversations on which to “hitch [their] wagon,” helps them optimize their performance as they participate in the conversation, and gives them reports on how effective they were.

Dachis Group, which raised more funding earlier this year, says it updates its data every 15 minutes. That data is available as an integrated part of the company’s larger toolset, but customers can also integrate it into their own custom social media “war rooms.”

Back on April 1st we told you that TechCrunch’s European team would be launching our very own range of “softwear” – a range of “underware” for nerds. Clean Tech, if you will. Admittedly this was a bit of prank (April 1st might have been a giveaway). But the people who set up our joke site decided not to keep it as a joke after-all, and now “Unerdwear” is actually launching.

This is fun project by a designer collective from Krakow, Poland who are currently residing in New York. As they say: “We want to build a great lifestyle brand for our beloved nerds, it’s not intended as a mass-market product.” What we’re talking about here is designer boxers with very geeky patterns. Think of it as “wearable” tech. And well, they do say softwear is eating the world, right? (ok, we’ll give up the jokes now).

Unerdwear Boxers (“Nerdies”) are 100% cotton, made in Europe (Poland), sold in limited series and were tried out at a couple of recent tech conferences where they did pretty well.

But the patterns should appeal to geeks like us, as they include “Developer Tools”, “PRISM 1954” and “Bacon I Love You”. The “Rails Girls Summer of Code” range will donate cash to that cause.

The core team of Joanna Socha and Kasia Bojanowska were both involved with Applicake, Railsberry and MMConf and are backed by Ela Madej and Agata Mazur. Both Socha and Ela are Y Combinator alumni.

You can follow them on Twitter and Facebook.

Newly launched mobile broadcasting app Yevvo has a different idea about how live mobile video apps should work. Instead of focusing only on a social model where users find and follow other people on the service, Yevvo users can also follow places in the real world, as well as events. Beyond its own walls, the app mainly targets the Twitter ecosystem and is designed to be push-button simple. One tap and slide and your entire Twitter network is alerted that you are live and on-air.

Yevvo’s focus is just on live video for now. Currently, only the broadcaster can save the video to his or her iPhone library when the video ends, but more options will be added in the future.

Today, there are, of course, a number of tools for recording and sharing live video. Services like Ustream, Livestream, Justin.tv, and Microsoft/Skype-acquired Qik led the live broadcasting spaces for years, targeting a range of end users from the everyday Joe and Jill up to professional broadcasters and businesses. More recently, Google stepped up its game here, too, with its Google+ Hangouts “On Air” feature, which lets users broadcast to the Google+ network, YouTube and any other website where the video is embedded.

But Yevvo CEO Ben Rubin explains that his company’s goal is to not just advance the technology around live video (a Google Glass app is in the works, for example), but also create a social culture within Yevvo where users interact around those streams. Watchers who follow specific places or people can like and comment on the stream to give feedback, or “re-stream” the live video to their own followers, similar to how users on Twitter retweet others’ posts on their own timeline, allowing for a more viral distribution of the recordings.

Rubin feels that with Yevvo, it’s less about being a tool for sharing and more about allowing a community to take part in an event in real time whether that’s a concert, a protest, or even a more personal moment a user wants to share.

There is, of course, a challenge in building a social tool like this, especially when it also somewhat competes with other social video apps like Vine and Instagram, which, while not supporting live broadcasting per se, are also fast and easy to use, giving a near real-time feel to the act of sharing. Yevvo only works well, at present, when you’re following a person or place that posts live video. Then, you’ll get a message that reads “So-and-So is On Air from Such-and-Such-Place – Slide to Watch.” You can do so to join in, but there just aren’t that many users on the service yet.

And if no one is broadcasting, there’s nothing much to do in the app at this time besides broadcast something yourself. (Features like Discovery by Topic are still coming soon, we’ll note). Not everyone wants to be a content creator – the majority just consume. This could be a problem for Yevvo, despite the app’s great design and underlying tech.

An Israeli company, Yevvo was founded around year ago, by Rubin, Itai Danino (CTO), and Roi Tirosh (COO) and has raised $500,000 in angel funding.

Investors in the company include Eden Shochat, co-founder of Face.com which sold to Facebook, and who has just raised $140 million for his new fund Aleph; Eyal Gura (who sold PicApp and PicScout, and is now a VC at Pitango); Ron Gura (who sold thegiftsproject.com to eBay, and now heads eBay’s social center in Israel), as well as Plus Ventures, EntreeCap, and other angels.

The app is live (get it?) on the iTunes App Store here.

Fountain pens seem hopelessly geeky to the uninitiated. Why bother with an expensive, finicky pen when most of us do all of our writing on keyboards and touchscreens anyway?

A few years ago, I just didn’t get it. I couldn’t for the life of me understand how a company like Amazon could operate, let alone flourish. I spent the majority of my time following Apple, a company which in many ways was the antithesis of Amazon. Apple was all about huge margins, big profit. Amazon seemed to avoid profit like the plague. The more razor-thin the margin, the better. They were Bizarro Apple.

And clearly, I’m not the only one confused by Amazon. When The Washington Post broke the news today of The Washington Post being acquired by Amazon founder and CEO Jeff Bezos, the flow of snark was fast and furious. “Bezos acquisition of WaPo shows just how much this man loves low-margin businesses.” “So, now Jeff Bezos owns two lifestyle businesses.“ Etc. Etc.

I piled on as well, but only to ensnare some folks in a conversation about what I’ve been thinking about for the past year or so: Jeff Bezos is no fool, he’s a genius. And if you can’t spot that, you’re the fool. Certainly, I used to be.

While the game Amazon is playing is not as straightforward as Apple’s, that doesn’t mean it’s a bad game to play. In fact, you could argue that it’s a better game to be playing right now in the respective life cycles of the two companies.

I understand, of course, that Amazon isn’t buying The Washington Post, Bezos personally is. And in an age where Newsweek (incidentally, once owned by The Washington Post) is getting sold for perhaps fifty cents on the literal dollar, and The Boston Globe is being sold for effectively negative $40 million, this move may seem to make less sense than Bezos’ Amazon operations. But I would not bet against Bezos here either.

Here’s the thing that most people, and certainly many in the tech press, don’t seem to understand about Amazon, and by extension, Bezos: when it comes to business, there’s a game being played almost flawlessly. The goal is actually to not make a huge profit too early, and Bezos manages it perfectly. You want to avoid showing your cards too early as you continue to lay the groundwork for an ever-larger business. Occasionally, you’ll have to show those cards and win a hand to prove that you can. But the rest of the time you call and fold, as you await the monster to take the entire pot.

I know that sounds crazy. Cash is king, right? Not always. Just look at Apple. They are the kings of cash. $13 billion in profit one quarter, $9 billion the next, and so on. The vault is so full of gold coins that even Scrooge McDuck would need a lifeguard to swim in it. And yet, Apple’s story the past year has largely been one of a company in flux. Will they ever right the ship? Is it over?

These silly doomsday projections are mainly a result of Wall Street swinging from ultra-bullish to extremely bearish on the company in that same timeframe. The “problem”? Apple was too successful, too quickly. Because the iPhone was such a good business — a bigger business than all of Microsoft, in fact! — Apple posted profits that were only surpassed by a few of the best quarters from the largest oil companies. As a result, the company shot from a has-been to the most valuable public company in the world.

But growth and more importantly, growth potential is what matters most to Wall Street. And when you happen to stumble into one of the best businesses in the world (the high end of the carrier-subsidized smartphone market), the only way to keep that growth going is to find an equal or greater business (or several smaller ones that add up to a larger one). It’s not clear if Apple will ever find this business, even with the fabled television and watch products. The iPhone business was just that good.

But Amazon has no such problems on Wall Street. Again, they’re Bizarro Apple. They’re not showing their cards. While their businesses keep growing from a revenue perspective, profit has gone from negligible to non-existent to an actual loss this past quarter. And Wall Street loves them for it!

Why? Two reasons.

First, they know that Bezos is devouring Amazon’s profits by pouring them into infrastructure build-outs. Data centers, shipping centers, etc. These are one-time costs that should pay off in the long run.

Second, they believe that at some point in the future, Amazon will flip a switch and, voila, profit. In fact, Amazon has the ability to do it at almost anytime, as Bezos has made clear in the past, but people seem to forget. As Adam Lashinsky reminded us in a profile of Bezos last year:

Bezos even takes a practical approach to his love-hate relationship with Wall Street. Having worked at a hedge fund in his twenties, he understands the investor mentality probably better than most CEOs. Perhaps as a result, for the first many years of Amazon’s existence, Bezos frustrated investors by refusing to realize Amazon’s profit potential. Then, around 2007, Amazon’s investments began to bear fruit, and investors were delighted. The stock is up 10-fold in the past six years. “We believe in the long term, but the long term also has to come,” says Bezos, explaining that periodically Amazon wants to “check in” with its ability to make money. Thus, in 2007, Amazon more than doubled its profit, to $476 million, on a 38% increase in sales to almost $15 billion.

A game.

Here’s what else you may not realize: while Amazon may be earning little-to-no profit each quarter, they continue to bring in money that they can actually use. How? As former Amazon employee Eugene Wei explained last year:

Almost all customers paid by credit card, so Amazon would receive payment in a day. But they didn’t pay the average distributor or publisher for 90 days for books they purchased. This gave Amazon a magical financial quality called a negative operating cycle. With every book sale, Amazon got cash it could hang on to for up weeks on end (in practice it wasn’t actually 89 days of float since Amazon did purchase some high velocity selling books ahead of time). The more Amazon grew, the more cash it banked. Amazon was turning its inventory 30, 40 times a year, whereas companies like Barnes and Noble were sweating to turn their inventory twice a year. Most people just look at a company’s margins and judge the quality of the business model based on that, but the cash flow characteristics of the business can make one company a far more valuable company than another with the exact same operating margin. Amazon could have had a margin of zero and still made money.

Forget profit, the emphasis has been on free cash flow since 1997, as David Lee reminds us.

And so I repeat, Bezos is a genius. He’s flying under-the-radar until he can buy the radar. And probably the company that makes all the radars as well. With Amazon, it’s not “now or never”, it’s “next”.

It’s certainly possible that Amazon slips up and they are never able to live up to the ambitions that Bezos’ has been building towards for the past two decades. But even pure mishaps like the LivingSocial and Pets.com investments didn’t do much to deter the trajectory.

So while The Washington Post purchase may sound insane, it’s probably a much more calculated maneuver by Bezos. He’s likely once again playing chess while we’re all trying to parse the way he’s playing checkers. And if it fails, what’s $250 million for an ever-more-wealthy billionaire anyway? Have you seen Amazon’s stock price recently?

[image: 20th Century Fox]

Before Jeff Bezos bought the Washington Post for $250 million, he had some choice words for the ailing print news industry. In a wide-ranging interview with the German paper, Berliner-Zeitung, the newly-minted media mogul said at the time that no one would bother paying for news online and print would be dead in 20 years (translation from our awesome Europe writer, Frederic Lardinois).

“There is one thing I’m certain about: there won’t be printed newspapers in twenty years. Maybe as luxury items in some hotels that want to offer them as an extravagant service. Printed papers won’t be normal in twenty years.” said Bezos. That’s a pretty long timeline (think what happened in technology since 1993), but it does given an indication that Bezos may pressure his new newspaper to accelerate abandonment of their print version.

During the last quarter, according to the Wall Street Journal, the Washington Post’s print division posted a 4% decline in revenue. Revenue from online publishing, mostly from Washingtonpost.com and Slate properties, increased 8% to $25.8 million.

Perhaps most importantly, Bezos claimed that, “On the Web, people don’t pay for news and it’s too late for that to change”. Last March, the Washington Post put up a metered paywall, charging readers who access more than 20 articles a month. While Bezos may not interfere with editorial, it is within his role as owner to see the paper to profitability. If Bezos thinks paywalls are misguided, we may see the Washington Post drop theirs.

Bezos did not think Kindle was the salvation of papers, since “the problem is that many readers still prefer the printed version.” There will be a significant transition period where publishers will need both digital and print.

Interestingly enough, Bezos says “We [Amazon] realized that people are willing to pay for newspaper subscriptions on tablets. In the near future, every household will have multiple tablets. That’s going to be the default and will provide momentum for newspapers, too”, so we may see some creative subscription models on the Kindle or bundled with other products.

I’m curious to see how Bezos will be applying these ideas to his newly-purchased newspaper. Either that, or he will be ‘clarifying’ his words very soon.

[H/T: BuzzfeedAndrew]

[Image credit: Flickr user jurvetson]

Jeff Bezos, not Amazon, is dropping $250 million in cash to purchase the venerable Washington Post. But it’s not only the paper that Bezos is picking up for his quarter billion. As part of the purchase, the Amazon founder will also become owner of a host of smaller local papers, the Washington Post website, and a printing outfit by the name of Comprint that the Post itself notes “publishes several military publications.”

That’s a slurry. In short, Bezos now owns a minor newspaper empire, crowned with the Washington Post itself.

But just how healthy are the assets that Bezos has purchased? Let’s take a trip through the numbers. Keep in mind that the Washington Post company is only so specific in its breakdown of revenue from its newspaper division. So, our looking glass is slightly dim.

In the second quarter, the newspaper division at the Washington Post company had revenue of $138.4 million, which was essentially unchanged from the year ago quarter. This is to say that the newspaper business that Bezos just bought a large piece of isn’t in as steep a decline as you might have assumed.

Print advertising revenue for the Washington Post itself was $54.5 million in the quarter, down 4% from the same quarter a year before. Again, that’s somewhat stable. The Washington Post and Slate.com, roughly, saw their online incomes rise to a combined $29.8 million, an increase of 15% in the quarter. Bezos did not buy Slate, however, so that figure is inflated compared to what the Washington Post will be able to generate on its own. That said, the Washington Post is the larger of the two, and so presumably commands a larger share of that specific revenue pool.

Online advertising revenue for the newspaper division rose 25% in the second quarter. However, online classified revenue fell 7%. What does all that mean? Essentially that the online portion of the Washington Post is growing at a decent pace, even as one of its revenue streams – online classifieds – stutters.

Print revenue is drifting downwards, as circulation slips. In the first half of 2013, the Washington Post saw its daily circulation decline 7.1% to 447,700.

It’s difficult to tell how much money the Washington Post loses, if any. The larger and now all-but -former newspaper division lost $49.3 million in the first two quarters of 2013. However, of that loss, $39.7 million was related to pension expenses. Also, in the first half of 2013, $19.6 million in “early retirement and severance expense” was recorded.

If there had been no retirement costs, and we deducted the pension expenses, the newspaper division would have been profitable, it appears.

Turning to pensions, a SEC filing states that:

[T]he Purchaser shall assume all liabilities that relate to providing post-retirement welfare benefits to Post Employees, and the Seller shall retain all liabilities that relate to providing post-retirement welfare benefits to Former Post Employees.

So, Bezos will not be responsible for endless legacy pension costs. And, according to AllThingsD, Bezos will be given “what amounts to $50 million” to help with the costs of newly acquired employee’s pension promises. That sweetens the overall deal, and lowers its effective price.

Given the inherent opacity of the financial information that we have, it isn’t precisely clear just how strong of a financial entity Bezos has purchased. However, I think that if we speak broadly, we can state that the Post’s rising digital revenues are encouraging, and could more than cover its falling print income. Therefore, if Bezos can control continuing one-time expenses, and stabilize its cost structure, the Post might not bleed cash. For a newspaper of its scale, that’s actually a somewhat impressive statement. Still, the same pressures that have long weighed on the newspaper industry remain in place.

The obvious thought is that given the close connection between Bezos and Amazon, the company that he founded, there could be additional revenue streams that would bolster the Post as a standalone entity. For example, Bezos could provide access to the Post’s paywall as part of the Amazon Prime service, carving out a small slice of that yearly revenue that could provide material benefit for his new paper.

However, when it comes to paper, that cost is coming down. As the company’s second quarter earnings report stated: “Newsprint expense was down 17% and 14% for the second quarter and first six months of 2013, respectively, primarily due to a decline in newsprint consumption.” Yes.

Top Image Credit: Jon S