This coming Friday night, I’ll be at the API Days conference in San Francisco to talk for a few minutes about my perspectives of the API economy. I am not a developer — just an observer — so my views are not deeply technical. That just means I have to ask more questions and talk to more people about APIs and what they represent.

But then I have to simmer it down, collect my thoughts, and then ask some more questions. Here are two themes I am picking up on from all these conversations.

Speed: APIs are making things faster. They connect apps. Software is eating the world. APIs connect the software so it can eat the world faster. Distribution is a driver of speed. The more distributed the API network, the better it can scale and the faster it can work to connect apps and create a mesh that is increasingly more effective than content-delivery networks.

An API distributed from a central point can slow things down considerably if the load increases on the server. API management companies are pushing APIs to the edge in order to manage the billions of calls that they get daily from service providers that connect the apps into websites, mobile devices, cars — you name it.

Data-intensive APIs are doing something else. They are slowing the network. To alleviate the issue, service providers are looking at the I/O, trying to find ways to make the data connect faster to the APIs that, in turn, connect the apps so someone can post a picture or get a text message about an update from a blog. It’s this need for speed that cloud services are built upon. Scale out the infrastructure and app developers will use it to get better performance and overall quality improvements. What’s still emerging are the advancements of the networks themselves. Again, that’s where software enters the picture and the further need for APIs. The infrastructure needs to be programmed. How that’s done is the big question.

Automation: Once one part of a system gets automated, the rest of it soon follows. APIs are the glue that makes the automation possible. People want to connect their apps. It’s why services like Zapier and IFTTT have gained such popularity.

People want to connect apps to get work done and reshape their reality. Chris Dancy uses IFTTT and Zapier to connect apps that feed into Google Calendar, Evernote and Excel. He uses these services to quantify his life. Through automation, Dancy can program himself and the things around him. He can connect his dog into the network and track its movement in the house.

In this new reality, everything becomes a node. You, me, the lamp post across the street all can have sensors and APIs to connect with other people and things. If this is the case, then the API economy is more about how this new network makes for different forms of commerce that maximize these connected, automated systems. The questions: What are these new forms of commerce? What are the infrastructure and systems needed for this new reality?

These are two themes in particular I look forward to discussing.

There’s a third but it’s an open-ended one that may be better off ruminating about in the hallways or over a beer. And that’s how this new idea about data and APIs is better understood by more than 1 percent of the people out there. It’s not just the geeks who should be able to live in the future but everyone else, too.

Article courtesy of TechCrunch

Editor’s Note: Nir Eyal writes about the intersection of psychology, technology, and business for Dashboard.io and on his blog NirAndFar.com. Follow @dashboard_io and @nireyal.

Ethan Stock lived the Silicon Valley dream. He had recently sold his company to eBay and emanated the tanned skin and relaxed composure you’d expect of someone who just cashed a big corporate check. But as we sat across from one another in a Palo Alto coffee shop, I was surprised by what he said next. “Mediocrity is worse than failure, you know?” For seven years before the acquisition, Stock served as the founding CEO of Zvents, an online guide for local events. Though he was successful by anyone’s standards, I could tell he was a guy who, like me, had learned some hard lessons.

“Zvents grew incredibly well,” Stock told me. “We were the largest events site of its kind, providing local listing in hundreds of markets and attracting over 14 million monthly unique visitors.” Zvents had done what so many tech companies dream of doing, they cracked the network effect and built a business that increased in value with each new user. The more event organizers posted to the site, the more useful the site became to people looking for things to do. Both parties loved the site and Stock’s company was in the middle, connecting visitors to events they otherwise wouldn’t find.

“But I learned the network effect isn’t everything. In fact, it became a liability.” Stock’s words confused me. How could being in such an enviable position of creating a valuable marketplace be a bad thing? “Getting paid was a bitch,” Stock said, and he began to unravel how certain marketplace businesses like Zvents can succeed themselves to death.

The Expectation of Completeness

Marketplace businesses exist to connect two or more parties, typically the buyers and the sellers. Investors love these businesses because they tend to grow quickly and spawn winner-take-all companies. A long line of successful Silicon Valley startups have found success providing a place for people to connect and transact. Examples of these kinds of companies include industry titans like eBay and LinkedIn but also include some of today’s web darlings like Uber and Airbnb. “Marketplace businesses are great,” Stock told me. “But there is a fatal flaw in some businesses that can hogtie their ability to make money — the expectation of completeness.”

Stock explained how Zvents had planned to charge event organizers to list on their site. “Once we reached critical mass and it was clear we were becoming the market leader, we expected event organisers would start paying.” Unfortunately, reality fell short of expectations.

Like many marketplace businesses, Zvents was catering to users who expected to find a comprehensive listing of all local happenings. To keep users coming back, Zvents had to ensure it was displaying everyone’s events — an incomplete list would send visitors looking elsewhere.

“When we asked event organisers to pay up, they said ‘what for?’,” Stock said. But threatening to remove a listing was not possible, Zvents needed them all to keep site visitors happy.

So Stock’s team offered event organizers better ways to reach users like sponsored placements, which displayed the listing more prominently on the site. But the attempt to finally get paid largely fell flat. “We certainly created value for them.” Stock said. “We were sending people to their events. We just couldn’t capture very much of that value. I guess it’s the old saying, ‘why buy the cow, when you can get the milk for free?’”

Just Like Google

“Google is similar if you think about it.” Stock told me. The comment surprised me given the tremendous success of the search giant juxtaposed with the Zvents story. “They also create much more value than they capture.”

He was right. When searching on Google, users also have an expectation of completeness. They come to the site to find all relevant results, every time. If Google decided to only display listings from paying advertisers, we’d all switch to Bing.

When considering the collective value of all the clicks on un-sponsored links, the company does give away the vast majority of the value it creates. Indeed, Google appears to be “giving away the milk for free.” The difference is that Google’s market is not limited to local happenings as was the case for Zvents. Google’s market is much, much bigger. In fact, it’s everything.

By organizing “the world’s information,” Google skims a proportionally tiny amount of value from a tremendously huge marketplace. The absolute number of people who buy a sponsored placement is large enough to keep the company humming, even though it only monetizes a tiny proportion of the value created.

Implications

The Zvents story should give pause to marketplace businesses going after niches. The expectation of completeness, and the resulting inability to monetize, may help explain the challenges faced by companies like Foursquare, RedBeacon, and many industry-specific job listing sites.

One way around the problem of completeness is to facilitate the transaction itself. Companies like oDesk, Etsy and Uber, ensure they are in the middle of the money by processing the flow of cash. It’s much easier to justify taking a cut when you hold the gold, particularly when doing so adds convenience and security to the transaction.

Without the ability to collect a share of each transaction, marketplaces serving users who expect completeness face a difficult challenge. Two options remain: either cater to a very large market, a la Google, or monetize a large share of the value created. The network effect alone just isn’t good enough.

TL:DR

• Network effects are great but they don’t ensure a viable business model.
• Though they may prove successful from a growth and engagement perspective, certain marketplaces can be very difficult to monetize.
• Marketplaces where either the buyer or seller expects to choose from an exhaustive listing – so-called “complete” marketplaces – typically give-up far more value than they are able to capture.
• Unless they facilitate the transaction itself, these businesses often find themselves in a bind.
• Complete marketplaces must either cater to a very large market, à la Google, or position themselves to monetize a large share of the value they create.

Photo Credit: shutterstock

Article courtesy of TechCrunch

The mystery of Path’s mysterious growth deepens.

The app, which has been around for nearly three years, miraculously jumped up the charts from between 500th and 600th place to the teens on the free list about two months ago. That raised questions about how the app was able to do that so spontaneously. Was it that Path finally suddenly acquired the network effects and organic growth that it had worked for years to trigger? Or was it something else?

Valleywag speculated that it was spamming tactics plus spending on advertising, citing a graph from app and mobile ad tracking service Onavo Insights. The chart showed that an uptick in advertising spending that coincided with Path’s gradual rise up the overall charts. In fact, a source familiar with the spending habits of various top-tier mobile developers tells me that Path was the third highest spender on iOS app install ads on Facebook in the month of April behind the usual suspects like the top-grossing gaming companies. It then tapered its marketing spend down in May, and it also suffered slightly on the charts after Facebook shut down the app’s “Find Friends” ability.

Path’s Facebook ad spending was also done in a clever way, with much of that spend being devoted to Spanish-language ads instead of English ones. We have an example unit at the top of the story, which appeared in the Facebook mobile feed and which Path put money behind earlier this spring.

Not only that, if you dive into Onavo’s data, you’ll see that the highest correlating apps for Path usage in the U.S. are Mi Banco Mobile and El Nuevo Dia. Morin has talked about this publicly before, telling The Wall Street Journal that the company saw a spike in adoption in countries like Venezuela, Mexico and Puerto Rico.

Path, for its part, is issuing its clearest statement today on its spending habits. It says it spends nowhere near what Valleywag claimed, which is more than $10 million in marketing over the last two months.

“We would like to set the record straight once and for all — Path’s recent growth has been primarily organic and viral,” said the company’s vice president of marketing Nate Johnson. “While we do run Facebook ads in growing markets around the world, that spend averages in the low 10′s of thousands of dollars a month at best. Recent claims that Path has spent an order of magnitude more than that are laughable.”

There are a couple ways that you can look at this.

If you took a more cynical point of view, you could argue that this is a way for Path to grow without industry observers and potential investors seeing that the company is doing potentially unsustainable user acquisition.

If you took a more benign point of view, you could say that the messaging market already has leading contenders in Europe, North America, China, Japan and South Korea through companies like WhatsApp, KakaoTalk, WeChat, Facebook Messenger and Line. While WhatsApp does have a lead in Latin America and other Spanish-speaking markets, perhaps this could be a savvy way for Path to lock down one of the last regional markets that’s vulnerable to a newcomer.

To be fair, I also think that Valleywag’s headline about Path “cheating” its way to the top of the charts is overblown.

Spending money to advertise your product is not a sin. The majority of companies at the very top of the grossing lists do this every day. It’s a form of arbitrage: spend X amount of money to bring in a user, and earn Y from them over their lifetime of playing a game, buying Groupons or stickers or whatever else. Mobile gaming companies like Supercell and Kabam have dedicated “user acquisition” teams that can spend millions of dollars per month on this type of marketing.

If Path is presumably earning enough revenue from sticker sales to justify this spending, it’s not really a problem.

But spending money on marketing in an ROI negative way is problematic if you intend to build a sustainable business — which could be an issue if the company moves forward with early-stage fundraising talks that could value it in the high hundreds of millions or even a billion dollars.

Article courtesy of TechCrunch

Doing a startup in Europe is challenging for all sorts of reasons. But one key issue is cultural — even if the gritty realism of European entrepreneurs is ultimately tied to the relative difficulties of raising larger investment rounds in the region. The can-do attitude of Silicon Valley is undoubtedly fuelled in part by the amount of investor money flying around. But that’s not the only reason. Failing in the Valley isn’t seen as an end point in the way it can be in Europe.

Being exposed to a little of that ‘fail and move on’ and ‘nothing is impossible’ attitude is a key part of the rational behind a new internship programme for U.K. computer science graduates that’s placing them with Silicon Valley startups for a year, starting in August. The Silicon Valley Internship Programme (SVIP) is aiming to get some of this Valley chops to rub off on 15 students from nine U.K. universities by giving them real-world startup experience in the place that knows how to do it best.

Programme founder, Michael Hughes, explains the idea for SVIP sprung from a conversation he was having at a meeting in San Francisco involving British entrepreneurs, UKTI reps, the British Ambassador and British Consul General, talking about — inevitably — why Silicon Valley has such a successful startup culture, and how the U.K. can emulate the Valley vibe.

“The meeting was to discuss why Silicon Valley was so successful and what could be done in the UK to try to stimulate similar levels of entrepreneurship,” he tells TechCrunch. ”A big theme coming from the entrepreneurs was that the prevailing ‘feeling of the possible’ in the Bay Area meant that you really felt like you could give things a go in this environment and hence, a lot more people take the leap to start a business knowing that even if they fail, they can have another lash.

“In Britain however (generalizing terribly), there is more of a tendency towards critique of ideas and it is harder to have your career recover from a failed venture.  So if your view is that entrepreneurial success comes with a big dollop of luck, the more people having a go the better.”

What better way to instill a sense of the possible in young coders than by exposing them to startup life for a year. After the year is up, SVIP grads return to the U.K. with a year’s worth of experiences under their belt and — hopefully — bring back a little bit of the West Coast positivity to contribute to the local startup scene.

“Ultimately the goal of the programme is to have a cadre of top engineers who combine the technical expertise with the experience and attitude to start companies once they return to the U.K. after the programme.  My dream is that a few of the guys on the programme get together and start something in the U.K. when they go back, supported and advised by the network they will have developed in the Bay Area,” says Hughes, himself a startup co-founder.

His startup, LoopUp, is one of the nine that will be accepting the 15 paid student placements in the first year’s intake. The other startups are EdgeSpring, Nimble Storage, EAT Club, PostRocket, Caring.com, viagogo, GuideSpark and Coffee Meets Bagel. Hughes says he got the others involved by reaching out to friends in the Stanford community and also hiring a Programme Manager to do more outreach.

“All the guys are coming out on a one year visa which requires them to return to the U.K. after.  Realistically, we all know that some of them will find a way to stay in the U.S., but even if they do, I don’t see this as a disaster for the U.K. After all I am a Brit, living in the U.S. for 17 years, yet with our start-up we employ 40 people in London and have fostered strong technology interchange between the companies,” he adds.

One of the students who will be flying out to California in August is Paul Wozniak, who is graduating with a Computer Science degree from the University of Kent. Wozniak applied for the SVIP in January, and had four interviews with two startups before securing his placement at LoopUp.

“My goals for the year are very much aligned with the goals of the programme: to learn the entrepreneurial skills in the trenches of Silicon Valley. I hope that by the end of the year I will pitch a company idea to an investor. One such idea is based on my final year project and is about

Article courtesy of TechCrunch

When it comes to online video networks, Google’s YouTube is the oversized and undisputed king of the hill with 1 billion monthly unique visitors. Yet that domination sometimes obscures some of the interesting developments that are afoot among the smaller startups also working in the same space. Vuclip, the California-based mobile video streaming network that focuses its efforts mainly in emerging markets, is today reporting that it now has 80 million monthly unique users, nearly double the 45 million it reported back in February, along with 1.5 billion minutes of mobile video served every month across 700 channels+ of content from Disney, Sony and other premium providers.

Backed by $27 million from the likes of NEA and SingTel, the startup’s CEO, Nickhil Jakatdar, tells TechCrunch that with the current rate of growth, it expects to be profitable by the end of 2014, without needing to raise any more money.

That, and Vuclip’s video streaming inventory and the technology underpinning it, are now making the company an acquisition target. We have heard from well-placed sources that Vuclip has been approached both by large portal companies, as well as carriers, looking for assets like these.

On the portal side, it seems that the interest may be in the video platform and the technology — both offering inventory and ways of monetizing it to companies looking to sell more rich-media online advertising. Carriers, meanwhile, might be more interested in picking up Vuclip’s captive video audience as a way of connecting and selling services to mobile consumers. (Reminder: one of Vuclip’s investors is the carrier Singtel.)

Jakatdar avoids commenting on the details of who may have approached the company, but he does admit it has been, and that he has said no for now, partly because he wants to see how much further he can grow the company before it either gets transformed or shut down by a new owner (not uncommon practice in the world of M&A).

“We’re not ready to hand over the keys,” he says, but he also adds that the company is interested in buying more assets itself.

In February, Vuclip made its first acquisition, the mobile video company Jigsee, to expand its own premium content inventory and app capabilities in India, one of Vuclip’s biggest markets. Now the aim is for “a few more” acquisitions in the next year. These, he notes, will be about picking up more technology to improve its platform, rather than to acquire users or content (which it seems to be doing fine on its own steam).

The fact that Vuclip is significantly smaller than YouTube has pushed it to think beyond advertising when considering how best to make money.

Not only does it lack the scale needed to get any kind of decent return on ads placed alongside premium content — let alone those trying to monetize long-tail content — but mobile advertising is still a small-time game, especially in the emerging markets of Asia and Latin America where Vuclip is used most.

Mobile data networks constrained in these parts of the world, and the mobile ad business is simply not big enough there yet. “In the U.S., mobile advertising is only now starting to become an interesting business,” he says — mobile ads cracked the $1 billion mark a couple of years ago, and are rising rapidly to $15.8 billion worldwide in 2013, says eMarketer — but emerging markets are still getting a small proportion of that. Recall, too, that overall digital ad spend in 2012 was nearly $100 billion; mobile ads are still relatively small.

In addition, Vuclip’s user base is not yet premium enough to merit high CPMs: the majority of devices, he says, are “the Asha’s of this world, not the Galaxy’s,” referring to Nokia’s low-end smartphones and Samsung’s high-end Android devices. That’s changing, of course. In the Middle East, he notes, iPhones are booming on their network; but not fast or big enough to drive a mobile ads business.

And so Vuclip is turning to something else to make money alongside mobile marketing: paid content and carrier billing. The company offers content on an a la carte, bucket pre-purchase, and subscription basis, with one-off and “valuepacks” seeing the most usage, Jakatdar says. Right now, the conversion rate on paid content offerings is between 5% and 6% — meaning of all the video views it sees on its network, that’s the percentage that are paying for the privilege, usually for cents per view.

The carrier billing decision is because these are emerging markets we’re talking about, where users often don’t have payment cards and so cannot hold iTunes accounts and the like.

But while carrier billing, charging purchases to a user’s bill or off a prepaid account, is often touted as a very easy, user-friendly, successful way to charge for content on phones, it also has its challenges.

Interestingly, the company’s projections on breakeven are based on the fact that right now, only 25% of its user base is actually being offered paid content. That’s because many carriers in the markets where Vuclip is most popular are not offering carrier billing yet themselves. Jakatdar says that it will be adding 10 more carriers to the roster this year in Asia before focusing on adding carrier billing in Latin America next year.

Article courtesy of TechCrunch

Microsoft is now offering multi-factor authentication for Windows Azure to allow enterprises to secure employee, partner and customer access to cloud applications.

According to the Azure blog, the capability will allow customers to enable the authentication capability for Windows Azure Active Directory (AD) that will identify and help secure access to Office 365, Windows Azure, Windows Intune, Dynamics CRM Online and  other apps that are integrated with Windows Azure AD. According to the Azure blog, developers can also use the Active Authentication SDK to build multi-factor authentication into their custom applications and directories.

Here’s how it works. People sign in with their user names and passwords. They then open an app on their mobile device through an automated phone call or text message — the idea being that it will better identify the true user, prevent unauthorized access to data and applications in the cloud. That in turn will reduce the risk of a breach and enabling regulatory compliance.

Active Authentication is built on the Phone Factor service which Microsoft acquired last fall. There are different options for set up. A customer can add it their Windows Azure AD tenant and turn it on for users. They can also add the service to custom applications by adding a few lines of code. The service also offers automated enrollment.

Customers can choose to pay on a per user, per month basis or by the number of

• users enabled for multi-factor authentication each month.

Adding AD to Windows Azure has opened Microsoft customers up to a much deeper way for IT to manage the use of its cloud infrastructure. It centralizes permissions. With Active Authentication, an IT manager can have a bit more peace that the people logging in are actually the people who should be accessing the network.

Microsoft is by no means the first to offer multi-factor authentication for its IaaS. Amazon Web Services has multi-factor authentication. Google also offers two-factor authentication.

Article courtesy of TechCrunch

King, the decade-old gaming company that staged a surprising revival through the iPhone and its hit Candy Crush Saga, is abandoning advertising as a source of revenue.

Going forward, they’ll be relying solely on virtual currency. (But really, it’s not like they need advertising at this point.)

“We’ve grown very fast over the last year. The business model has changed because the majority of our revenue growth has come from micro-transactions around the Saga games,” said chief marketing officer Alex Dale. “It makes sense for us to reallocate the resources we had previously committed to advertising business.”

The company has been around for about a decade and managed a destination site called King.com that launched hundreds of arcade-style games. Although they were a bit late to social gaming, they parlayed some of their best performing work onto the Facebook platform about two years ago.

But their real success didn’t come until the last six months or so when they brought Candy Crush Saga to iOS. It’s now a regular at the top of the grossing charts and took the company to 70 million daily active players (or more than Zynga). Now King is seeing 26 billion monthly game plays a month, up from 1 billion plays per month a year ago.

While the company hasn’t commented on revenue, game developers with similarly ranked games like Finland’s Supercell have said they’re pulling in $2.4 million per day. But Supercell has two top grossing games, not one like King.

The company sent an e-mail earlier this week to advertising partners saying:

“King’s #1 focus around delivering an uninterrupted entertainment experience for our network of loyal players across web, tablet and mobile has unfortunately led to the difficult decision of removing advertising as a core element of King’s overall strategy. The executive team has decided to withdraw completely from the advertising business thus, removing all advertising elements within every King game worldwide effective immediately.”

The changes mean that a few people are parting ways with the company, Dale said. But they’re reallocating the rest to different roles internally.

“A couple of mainly commercial people will leave as a result of this,” Dale said. “But they’ll get generous support and they’ve done well in attracting major brands. So we’ll help them as in generous as manner as possible.”

Article courtesy of TechCrunch

Just about eight weeks ago or so, I was on a call with Zynga’s COO David Ko following the company’s first quarter earnings report. Zynga was trying to manage expectations for the coming two quarters by saying it had paused its game slate to re-evaluate every upcoming title on the table.

I can’t remember the exact question I asked, but it was something like, “Finland’s Supercell made $104 million in profit on a headcount of 100 last quarter while you made $4 million in net income with roughly 3,000 people. Does your headcount and structure make sense?”

Ko, who has a reputation as a savvy operator and is very media-trained, dodged the question saying, “We’re the biggest believers in social gaming across all platforms. This year, we will measure our progress by our ability to bring existing franchises to mobile while maintaining profitability.”

However, even if some Zynga employees were caught off guard by this month’s layoffs, the writing was very clearly on the wall. A company that had grown up built for one platform (Facebook), wasn’t well-adapted for the realities and economics of building titles on Android and iOS.

They aren’t the only publicly-traded Western gaming company grappling with major platform shifts affecting the entire industry. In the first half of this year, both Zynga and EA have shed roughly 1,500 jobs. While their situations are unique, both rounds of layoffs have to do with the stagnation of gaming platforms like consoles and Facebook against the rise of iOS and Android.

While there are plenty of emerging mobile gaming companies like Supercell and King, the situation raises a question I’ve been thinking about for the last several months.

Is the venture model of funding gaming companies, which prizes a large exit through a sale or IPO and rapid growth, well-suited for a new world where companies can rise and fall as quickly as their hits climb and tumble off the charts? Are we in a period where new incumbents will rise up and eventually hold on to their dominance, or are we in a new era which is just inherently more chaotic and unpredictable?

Zynga, which took around $850 million in venture funding, put huge pressure on itself to grow quickly. In Zynga’s fastest-growing days, the company was adding at least a person a day on average. That has ultimately made it difficult to maintain a cohesive company culture and adapt to rapid industry shifts.

Toward A Dividend-Based Model?

While gaming startups may need some initial capital to market their titles, they can throw off lots of cash if they’re successful. Meanwhile, the IPO door is closed in the short-term because of Zynga’s lackluster debut, and the market for large nine- or 10-figures exits is quiet as giants like EA and Zynga re-strategize. At the same time, while barriers to entry are rising, the network effects that the biggest companies have aren’t as strong as they used to be in the console era where relationships with retailers and distributors mattered.

I’m not the only one who is thinking this way. Perhaps with fewer exit opportunities and lots of potential cash flow, dividend-based returns just make more sense.

On a call last week with longtime EA executive Neil Young, who sold early mobile gaming company Ngmoco to DeNA for up to $400 million and is now on a new non-gaming startup N3twork, said that gaming financing needs to be rethought.

“The restaurant financing model might work for games. You could get a payback through a new split of dividends,” he said.

Then there are smaller investment firms like iVentureCapital out of Hamburg, Germany, a traditional hub for browser-based gaming companies, that has backed gaming companies like Kamcord and is open to earning dividend-based returns.

Still others are experimenting with contracts for revenue share instead of outright ownership. Rizwan Virk, who co-founded and sold Gameview Studios to DeNA, then invested in Tapjoy, Pocket Gems and Funzio, which was eventually acquired by GREE for $210 million, said he’s been asked by developers in the last few months for advice on how to structure these kinds of deals. He added that each case is really unique and that he doesn’t have a blanket recommendation for going one way or another.

“What’s happened in the last six to 12 months is that VCs and even a lot of super angels aren’t investing in as many game startups anymore. So the companies with funding — the ‘haves’ like the VC-backed startups and big mobile guys — are turning into publishers or funders of games in exchange for a revenue share with the developers, or the ‘have nots’,” Virk said. “This becomes a way for developers to not give up a big chunk of the company for a relatively small amount of money.”

There are also several very successful mobile gaming companies like Minecraft-maker Mojang and Temple Run-maker Imangi Studios that have gone for years without taking outside venture funding.

Why might a dividend- or revenue share-centric model make more sense? Here are a couple factors to consider:

Haves And Have Nots

One dynamic that’s been interesting to watch as the mobile gaming industry has matured over the last couple years is a mutual disdain that certain gaming founders and venture investors have for each other.

Studios that are successful can throw off in excess of $1 million per day. (Supercell last said it was earning $2.4 million per day. That’s like printing a Series B round every week.) So the “haves” definitely don’t need funding. If anything, many of the rounds that have happened over the last few years like with Rovio and Supercell, have been secondary — meaning founders, early investors and employees took cash off the table. The capital didn’t go into the companies.

At the same time, other studios like Temple Run-maker Imangi Studios, Minecraft-maker Mojang, Backflip Studios and Subway Surfers-backer Kiloo, haven’t taken funding because they haven’t wanted it or the terms weren’t right.

And the “have nots,” whether they’re companies that have yet to see a major hit or need cash to keep going in a lull, obviously find it hard to raise on decent terms. Booyah, an early, hyped mobile gaming company founded by Blizzard alums and backed by Kleiner Perkins and Accel, is on its third CEO in two years.

Certain top-tier venture investors, likewise, can be wary of the hits-driven nature of the business. Greylock doesn’t have a mobile gaming bet, although their China fund does with Hoolai. Sequoia hasn’t publicly made a bet on a mobile game development company since Pocket Gems in 2010, although they’ve backed educational app makers and players that help the broader ecosystem monetize like Chartboost.

The concern is that with a hits-driven business, an investor might come in with too large a valuation if they price a company at its peak. The company could later fall off if they don’t have other follow-up hits.

Because of the hits-driven nature of the business, you could even say that Supercell took a knock on its valuation. At a $770 million valuation, the company was priced at only about 1X its annualized revenue based on the $179 million it made in the first quarter of this year. Then at a $2.27 billion market cap, Zynga is valued at only $600 million more than the cash, short-term and long-term investments it had on its balance sheet at the end of March.

Equity Structure

Secondly, the normal equity breakdown — which is a perennially touchy issue for any company — makes even less sense for a gaming company.

In a business with really strong network effects, like a marketplace like Airbnb or a social network like Facebook, the first 20 employees almost certainly have more impact on the trajectory of a company than the 1000th or 1500th employees, who arrive once a company has momentum.

But in a gaming company, which by nature has lumpy and unpredictable revenues, a 500th employee is arguably equally capable of producing the next great multi-million or billion-dollar franchise as the 50th. So the reward structure has to reflect that. It probably has to differ from the large equity drop-offs that you would normally see between earlier and later employees in a typical venture-backed company. At this point, Zynga is going to have a hard time recruiting the best talent in the world given the layoffs, the present size of the company and the earlier PR nightmare it had with equity clawbacks.

Companies like Supercell are trying to fight this dynamic by building a strong culture that prizes talent and creative risk-taking. In their secondary round earlier this year, they gave all employees the opportunity to take roughly 16 percent of their stake in the company off the table.

The Exit Market

Lastly, it’s hard to read the tea leaves right now and understand whether the IPO market is just in a temporary lull for gaming companies, or whether there is something more long-lasting and structural at play.

Right now, it’s difficult to make the case for any freemium gaming company to go public unless they can prove they have a model that defensibly and reliably produces revenues and hits. With the decline of their player base on the Facebook platform, Zynga’s debut has damaged short-term IPO prospects for other gaming companies. Competitors like Kabam have released basic earnings figures to send a message to public market investors that the whole category isn’t bad.

But the two or three companies that might have a shot at an IPO have too short a track record. Supercell has two games, Candy Crush Saga-maker King only came to mobile platforms last fall and Kabam has been on iOS for a year and a half. The exit market for large acquisitions in the West is also quiet now as EA and Zynga go back to the drawing board, and Japanese companies like GREE and DeNA work through their last round of U.S. deals.

Public market scrutiny has also been tough for Zynga as it works through this transition. The amount by which their shares have sold off has to be intimidating for any gaming CEO considering listing in public markets. For a lot of companies that want to preserve their unique cultures like San Francisco-based midcore game maker Kixeye or Supercell, it just makes sense to stay independent and private for the foreseeable future.

So we’re looking at a host of companies that have stayed private, generate huge amounts of cash and may stay that way for awhile. What this means for investors and employees is that they’ll have to sit tight and wait for the M&A and IPO market to heat up again. Or financing will have to change, so that stakeholders can be rewarded in a different way.

There Are Still Believers, Though

To be fair, nine out of the top 10 grossing games in the U.S. iOS market today are from venture-backed or publicly-traded companies. Funding from top-tier firms does tend to go toward really good teams. Plus, with marketing and production costs rising, many gaming companies do need capital to start off.

Yet no money comes without strings attached. While Supercell is conscientiously trying to hold off the pressure to grow too fast, the investors who went in on the last round — IVP, Atomico and Index — are effectively betting that the company will be worth at least $2 or 3 billion some day. And Kabam, which has taken at least $125 million in funding, may be too large to be acquired at this point and may have to wait for the IPO market to clear.

But for gaming startups being founded today or for investors looking at the space, the market seems ripe to find new ways to fund creative talent.

Article courtesy of TechCrunch

There is a certain jollity in the reactions of the webby class to news that the NSA has been, first, spying on Verizon communications for years, and second has approached multiple information-gathering startups, hat in hand, asking for access to their data stores. It is indeed funny: faceless bureaucrats who, we are certain, can barely click the Start menu, are horking down data from America’s Can You Hear Me Now Network while browsing our Facebook profiles over lunch. Now that the truth has come to light, we’re positively giddy. All of our worst fears have come to call and it’s hilarious.

I had heard the refrain for years from the conspiracy-minded: “Google/Facebook/Twitter/Apple will sell you out in a second.” Well, they have. Every word written by RMS (“I refuse to have a cell phone because they are tracking and surveillance devices”) was true and every time Doctorow incited us to run Ubuntu with an encrypted root partition we should have listened. But who cares? We’re not building bombs in our kitchens, we’re playing Farmville. Their jeremiads only reminded us of what sticks-in-the-mud the privacymongers are and how clever we are when it comes to routing around damage.

Maybe we should have listened.

We asked for this. We asked for this when we traded password protection for single sign-in. We asked for this when we chased social network after social network, creating a deer trail that could lead a hunter to our crushed-grass bed, still warm. We asked for this when, almost a decade ago, we traded some privacy for some security and got neither in the bargain.

I’m as guilty as you (unless you’re Cory Doctorow.) I dumped my photos into someone else’s hard drive. We use a publishing platform that will roll over to plagiarists and lairs thanks to the DMCA. We have no expectation of privacy (nor do we particularly need it, I’d imagine) and so we upload our work to the “cloud” where it sits, potentially unmolested, in DropSugarGoogleBox’s servers. We give Amazon a list of things we like and do not like and are amazed when it offers up a slew of products that will strike the perfect chord of our fancy. We are like a drunk blundering through a crowd of pickpockets. That we are not poor and naked already is a testament to either the goodness of humanity or the ineptitude of the criminal class.

In short, we didn’t trade privacy for security. We traded privacy for convenience. And the government, seeing a hole, took advantage of this.

This era of absolute trust is fading, at least in certain circles. Facebook is boring and Twitter is a firehose so people late to the game probably won’t even bother with those services. It will take a few good Google crashes to wean us off of cloud services but as the price of storage falls precipitously and the ability to connect to a home network becomes increasingly easy I could see a time when Yahoo’s promise of a free terabyte is vaguely seedy. This breach itself will probably encourage millions of programmers to use harder encryption. And so it goes.

A bad sysadmin can get away with typing “chmod a+rwx .” for years. Then some hacker discovers that little peccadillo and hides a rootkit in his server. Then that sysadmin learns his lesson and moves on. I’d like to think we’re going to be the same way, but I doubt it. We love our ease-of-use, our single sign-ins, our constant pings and instant access. We will not trade that because someone, somewhere, may be reading our private correspondence.

And so we’ll ask for it again and again. The crypto-lovers will cry wolf, then the real wolf will come and we’ll laugh it off, confident in our abilities behind the keyboard to outsmart a bureaucratic apparatus so outdated that they still require us to file our taxes on paper. Slowly, steadily we will watch this crisis erode and the next one will build itself in the old one’s stead. By that time we’ll be lifecasting what we see and hear 24/7 using wearables, perhaps, but we web savvy users will laugh that off as well. We’ll smirk at some lumpen NSA agent hunched behind a computer watching us spoon sugar into endless coffees and talk about movies and TV shows. It serves them right, we’ll say, for wanting this data in the first place.

As Schneier writes: “Welcome to an Internet without privacy, and we’ve ended up here with hardly a fight.”

When apathy is our defense we deserve what we get. But apathy breeds another kind of insecurity and makes us bigger targets still. We forget this at our peril.

Article courtesy of TechCrunch

The growth of mobile devices, smartphones, and social networking services have forever changed the way we take photos. Today, we continuously snap pictures, pausing only to selectively share the best to our network of friends, family and followers on sites like Facebook and Instagram. Today, a new photo-sharing startup called Piccolo is launching into beta with a service that aims to make photo printing easier, by offering a tool that works alongside our current behavior rather than trying to change it.

With Piccolo, the idea is that we’re already doing the work of curating our photos by choosing which ones to annotate, add a filter to, crop, edit or otherwise share to our social networks. Those are the ones we’ve already determined have some meaning to us. So Piccolo will then automatically print a copy and ship those photos to your house on a monthly basis, as well as to any additional addresses you may specify. (Like your mom’s house, for example.)

The startup was co-founded by developer and consultant Nicholas Hall with Kate Oppenheim, a partner and executive producer at m ss ng p eces, a Brooklyn-based creative production company which has worked on a range of projects from American Express commercials to Google’s “How It Feels Through Glass” video.

Oppenheim explains that she had the idea for the startup after struggling to sort through the thousands of photos she had been saving to Dropbox via an IFTTT recipe which automatically copied her Facebook and Instagram archives over to the service for safe-keeping. “It was very frustrating,” she says of trying to find the photos she wanted to print. “Also, I was going through this very strange process of having to download photos and uploading them again which was really slow – a lot of the photo-printing sites out there are built on old technology,” Oppenheim explains. Those sites are also poorly designed and overloaded with upsells, she adds.

Eventually, she just gave up.

But that frustration, as is often the case, led to inspiration – that of a “set it and forget it” subscription offering which picks the best prints for you.

Although there are tons of photo-printing services out there today, as well pre-paid plans for avid photo takers, what makes Piccolo interesting is how it determines what to print.

When users first connect their social accounts to the service, the app analyzes how many photos you regularly share, then makes a suggestion of which subscription plan would best fit your needs – the mini, mezzo or max plan, offering up to 20, 40 or 60 prints per month, respectively. The mini plan is $12 per month (or $10 if you sign up for a year), then it’s $15 for the mezzo (or $18/mo. month-to-month) and $20 for the max (or $24/mo. month-to-month).

“We hope that you pick a plan that meet your needs every month, so you don’t have to do a lot of work,” Oppenheim says. “But if you go over your plan – if you pick the mini plan but you have 26 photos, we’ll print the 20 most popular photos,” she explains.

In addition, on the first of each month, Piccolo sends out an email reminding you of the photos you’re about to have printed, which you have two days to respond to by going online and editing the selection if need be. The photos are then printed using a professional lab, offering quality that’s beyond that which the drugstore kiosks provide today, Oppenheim notes.

Given its pricing, the service is not at all the most affordable option – the big-name brand photo-sharing sites easily have it beat – but the idea is that users are paying for the convenience, not just the prints. This idea, to some extent, has been attempted before. The Y Combinator-backed photo printing service PicPlum that debuted back in 2010 (before losing a co-founder to Twitter earlier this year, after the other had already picked up a day job of his own) does something similar. But PicPlum’s product was never fully developed – users had to email in their prints, and there wasn’t the same sense of automation to the overall process as there is with Piccolo.

Piccolo is a bootstrapped startup, with only the two co-founders as full-time employees for now. In time, the plan is to roll out support for more supported services as well, including Flickr, Picasa, Tumblr and others.

TechCrunch readers interested in testing this out for themselves can sign-up here for an invite. The company will prioritize those sign-ups, and let in the first 100 people during this closed beta period. You can also use the code “TECHCRUNCH” at checkout for a free first month.

Article courtesy of TechCrunch