Editor’s note: Adam B. Levine is the Editor-in-Chief of the Let’s Talk Bitcoin Network, an independent, original content platform focused on the future of money. He is also the Chief Visionary Officer at Humint.is, a consortium working with brands and individuals to build customer cryptocurrencies for good. Contact Adam here and follow him on Twitter @GamerAndy.
Crowdfunding has become increasingly popular over the last few years and the market somewhat saturated. One of the problems of crowdfunding is if you don’t need or want the reward offered in exchange for your donation, there isn’t much incentive to support a project. This is a problem we can change, and by doing so reinvent cryptocurrency as we know it. I’ll also describe “The Startup” that I believe many people will eventually create to provide the services described. Please steal the idea.There’s No Reason
Why are cryptocurrencies valuable? In the case of Bitcoin, because it was the first and is by far the largest, receiving the majority of monetary and media attention, with the one harmoniously building the other. Look at the second most popular coin, Litecoin, and the value is not as clear. The technical changes made compared to Bitcoin are slight. Unless you really value a larger monetary base (4x more than bitcoin) or faster confirmation times that provide illusory benefit (you just need 4x more of them for the same amount of certainty), there isn’t much you can do with Litecoin that you can’t do at far more places or with far more people than Bitcoin.
This is because the only reason to buy Litecoin is an expectation that its value will increase over time due to more people buying them speculating the same thing. Lacking a good reason or first-mover and earned-press advantage, you’re relying on the greater fool theory of investing which is a recipe for long-term disappointment. Indeed, the great hope for Litecoin or any standard alt-coin (any cryptocurrency that is not Bitcoin) is to find its way to an exchange that benefits from easier trading than in forums or chat rooms, where trust can be hard to find.
The thing we’re missing is a reason. The greater fool suffers from there always being a limit to the number of fools before the gains start to slide and buyers turn to sellers trying to lock in gains. Once upon a time the value of dollars was secured by gold. You could trade in a minimum amount with the issuer of the currency (the federal government, or private banks depending on the time period) and this secured the purchasing power of the dollars. Fixing a price to gold isn’t because gold is the only thing you can peg it to, but rather because it’s thought of as something valuable and can be universal in nature. But not everything needs to be universal in nature, and some things that are universal in nature don’t need to be valuable themselves as money.
Goods and services are valuable in monetary terms but not in a monetary sense. By fixing issuance of a custom cryptocurrency to a good or service, with a company ready to accept it at a fixed or floating rate, a single individual or group — even only capable of local distribution — can support a globally tradable cryptocurrency should the story be compelling enough or the private issuance small enough.Why We Mine So the question is, why mine alt-coins instead of just creating them and selling them into the market? Because of the excitement of the gold rush. The people who mine the first of your currency will be your distribution channels and have a huge incentive to sell them for as much as possible. It’s easy to mine in the beginning, that’s the elegant way it sucks in those who become the biggest advocates as they have the most to gain from mass adoption. In the case of greater-fool investing, this leads to dishonesty. But for genuinely useful things it’s fierce and unapologetic advocacy and education.In a deflationary currency with a predictable rate, everyone gains and so there is incentive to tell everyone you know and get them involved. The more of us in, the more valuable each one is.Unlike a currency, you want to issue new alt-coins fast: two months with difficulty scaling based on the number participating. After all have been issued, you want a period of time where they are tradable but not redeemable so the future value can be speculated on. After a certain point they should become redeemable at a fixed high rate that drops over times.
This means that even in a currency with the entire money supply in circulation, you can have a long-term controlled deflationary trend simply by lowering the exchange rate at predictable intervals allowing people to buy or sell in advance of the change based on their situation.
So mining really is a marketing decision; you pay the price of not being the first seller of the currency, instead relegating yourself to 50 percent while allowing those doing the work to run away with wild profits. They’re the ones who get to tell everyone how great it was doing it.Backed Company Cryptocoins
Take any freemium software-as-a-service company; for premium features they could accept U.S. dollars as happens now. They could also issue their own cryptocurrency, a token that offers savings when used with the company it is associated with. The service would accept at 20 percent off the U.S. dollar prices for all their services. It would start off mined, and 50 percent of the block reward would go to the company, with 50 percent going to the miners.
The miners have a coin that has real value because from minute one, you can use it to purchase these particular services. And yet as a cryptocurrency, it is tradable for Bitcoin, on exchanges, etc. The network will initially start because computational power is cheap and early adopters are more inclined to devote CPUs to mining cycles than they are to dollars on a service they might not even want.
If your company only accepts dollars, there’s no reason for your customers to care about the company once their needs have been met. With a proprietary cryptocurrency, simply holding some of their value in your coin means they profit from the growth of your business and future price increases in the cryptocurrency value.
This can be done naturally by adjusting to the market over time. Or it can be done via a long-term schedule published in advance to allow the market to price in the information and bias the customer’s mental math toward holding your coin for future gains. Since a project’s coin is really just a claim on future value from that specific project, anyone holding your coins is a stakeholder vested by their actions whether mined or purchased on a market. If more people are interested in your project or product later, a fixed-supply token will, seeing more demand and no change to supply, become more valuable both for the company and any users holding it.
One of the most appealing things about cryptocurrencies like Bitcoin is their rules-based nature. The rules are set out in advance and apply to everyone evenly because the protocol simply has no capacity to accept anything outside the rules or to deny anything within the rules.
Ideally this would be done on a schedule that causes slow, steady deflation in the currency over time. Each token becomes more valuable because fewer tokens are required to pay for the service that still costs the same amount of U.S. dollars.
Once a customer spends the coins with the company, the coins don’t need to be destroyed; as the company receives them they should be sold back into the market. SaaS is an exceptional early use-case for this sort of proprietary-token service. Unlike most businesses, cost is primarily front-loaded with only maintenance and R&D as primary costs after the initial launch.
Because of this, the per-user cost of providing premium features on SaaS is basically a rounding error rather than a relevant factor determining the sale price. The company could sell them back into the market to take profits in Bitcoin or another currency of choice.
At the point you wish to stop trading with them (which should be at least five years in projected duration), there should be a final turn-in period either done surreptitiously, where received stock is simply not sold back onto the market, or be announced, which might lead to a rush against the price. If built on one of the upcoming Metacoin platforms like Counterparty, these tokens can be made “callable” at a contractually specified price on a contractually specified day. So where every Cryptocurrency used to live on forever once it was created, experiments and mistakes can now be unwound.
Once the market is mostly cleared of the legacy coin, a new one can be launched and the cycle can start over again.Assets, Crypto or Otherwise
You can create a price with anything simply because someone, somewhere is willing to trade something else for whatever you have. Obviously some assets are better than others, but instead of thinking about raw goods, let’s update our mindset.
Any product, good or service offered by a company can be physically backed by a product, and the more popular the product the more attractive it is as a good to hold. With a blockchain-type product, messaging, financial or otherwise, the course is simple; it’s a rotating option that grants whomever holds the “share” (see Stan Larimer and Daniel Larimer) a copy of the new blockchain product on a set date at a fixed rate.
Even after a company has exhausted their potential ideas and abandoned such a coin, the very fact that it is so inexpensive could be its resurrection. Another company could opportunistically buy those very cheap and abandoned shares, then announce they’ll be honoring them for their service or product with the rate of exchange being the characteristic that defines the intrinsic value since they are one and the same.
With physical products, you have the liability of existence, and that means the equation is different. You must project production and determine your monetary base based on a multiple of that number, with again a gradual increase in value over time to promote users to spread out spending over a slope rather than piling in all at once.
Let’s say I can produce 10,000 high-quality rare wood-cutting boards in a year and I want to start redeeming at 100 woodcoins per cutting board, with each cutting board going for $50 when paid in dollars. That gives us 1,000,000 Woodcoins for a total money supply once mining is completed. Your production is such that you would rather ship more at the end of next year than the beginning, say because you need to ramp up production.
Every month, you lower the price a little bit in woodcoins. These planned price drops are points around which the value of Woodcoins rise in advance because they will be able to buy more in the near future.
Aside from reference products, in this case a cutting board, an entire offering could be built around this with the prices scaling to suit those with small amounts and those with large amounts. As you collect woodcoins in exchange, you have the ability to either sell them back onto the market, which lets you capture the market price they now represent, or hold onto them and draw down the money supply to further increase the value.How Is This Crowdfunding?
The crowdfunding connection is inherent because a coin can be introduced, mined and traded in advance of the product being ready. The market price is derived based on the expectation of future value of the project the currency is built around. When the currency can be redeemed per the social contract by the issuing company for the product, the promise is fulfilled to those who bought the currency to pre-purchase the good or service.
This allows people who don’t want the eventual reward to still purchase, evangelize and participate in your project. Even if they don’t want it, the more successful the project is, the more valuable the currency that interacts with it is and, therefore, they gain financially even if they don’t give a shit about the project themselves. It turns crowdfunding from something where you buy merely to support your passion into something you also buy because you speculate that lots of people will be passionate about it, therefore increasing the value when you buy early.Create This Ecosystem
So who can do this? Just about anybody. And anything that people pay dollar bills for can be used to imbue a company cryptocurrency with value. It is still decentralized, it is still out of the control of the company once created and it is definitely possible to fail with market forces at work. But it does change the way one thinks about crowdfunding projects. There’s no need for Kickstarter at all if the right pieces can be brought to bear.Pick Your Platform
While many companies create products, very few create cryptocurrencies. The most common way a cryptocurrency is created is by forking another cryptocurrency, nearly all of which derive from Bitcoin. Bitcoin is a revolutionary and incredibly powerful tool for P2P monetary transactions, but its development legacy and the need for a continuous blockchain from its first launch means that it has many legacy issues and duct-tape fixes. Lacking knowledge and appreciation of these complexities, many talented developers find themselves running into repeated frustrations. Furthermore, Bitcoin is an all-in-one client which means individually desired functions can not be easily separated out.
The startup will offer alt-coin creation services and economic consulting to best determine the fundamentals of the new coin and implement the vision. To that end, it would be desirable to use one of the metacoin platforms that can be easily modified and have a clean development history free of the legacy issues from coins developed early in the cycle. The whole ecosystem is open source so there is a wide array of tools to choose from already and many more on the horizon.
Results include a reinvention of crowdfunding and the ability for any industry from software as a service to brick and mortar to create a class of enthusiastic and invested consumers incentivized to grow your brand. It’s a way to leverage into the Bitcoin ecosystem, and it’s a reason to own an alt-coin that’s not the expectation of more fools piling in.
And we’re just getting started.
Lead illustration by Matt Innes; additional illustrations by Bryce Durbin
Daniel Suarez self-published his first novel, Daemon, in 2006. The book and its sequel Freedom™ chronicled the rise of a botnet that uses self-driving cars to kill humans, crashes the stock market, and creates a new society in its own image. His next novel, Kill Decision, published by Dutton in 2012, was about aerial drones that could decide when to use lethal force independently of any human.
After reading his books, you could be forgiven for thinking it was time for someone — the government, maybe — to put the brakes on technological progress for a while. But he wouldn’t agree with you. In fact, his latest novel, Influx, explores the idea of trying to control technological progress. And it’s just as scary as his previous stories.
Influx, which will be out next Thursday, is the story of Jon Grady, a physicist who invents a machine that can reverse gravity. But before he can share his work with the world, a secret U.S. government agency called the Bureau of Technology Control seizes it and arrests him. He soon learns the BTC has seized many other inventions, including cold fusion reactors and quantum computing systems. Using the technology it’s stockpiled, the BTC has become more powerful than any government. And it’s completely out of control.
I interviewed Suarez about Influx, the real reason that technological innovation has slowed down and why he has reservations about Bitcoin.
TechCrunch: Your previous books focused on the dangers of certain technologies, particularly artificial intelligence, robotics and drones. But your new book focuses on the dangers of withholding or restricting technology. What made you decide to change direction?
Daniel Suarez: I’m not sure I would say that it’s a change of direction. Let me revisit how you describe what I do. I actually love technology. I worked for 18 years as systems analyst in technology. If we are going to be addressing the very major problems that you see before humanity, it is going to be technology that’s going to rescue us, basically. We are going to have to think our way through this and that’s going to involve obviously a lot of people and all these conflicting ideas.
That’s why I push back when people describe my books saying that I’m showing the dangers of technology. Not just the dangers.
I think that for all of the dangers of technology spreading, I think it is more dangerous in some ways that it doesn’t. My simple reason for that is we’ve got 7 billion people on the planet and we have these very serious problems and I think we don’t know who’s going to have the answers to the problems that are coming around the bend. That’s why we really need everybody thinking on it. We need every Einstein on this planet to help us.
Who’s going to have the idea that modifies a technology that brings it to the next level or combines it with another technology? I think in the long run we’re going to be better served by sharing knowledge as opposed to creating silos of it.
The role I see for my books is trying to think through the consequences of various things because a lot of the issues around technology and the nuances in it are not usually widely appreciated. That’s how I view my writing as I sort of explore this terra incognita ahead of us in an effort to try to understand where we might be heading. And I do that using the thriller genre because I think it’s a useful way to explore the territory in a realistic way without boring the crap out of people.
TechCrunch: You wrote this book before the Edward Snowden NSA revelations, but you’ve said that the Snowden revelations weren’t that surprising given the leaks that had come before. Did you have the NSA in mind when you wrote the book?
Suarez: Well, it’s funny that I showed them in the book as sort of hapless victims in a way of the BTC. There was something appealing of course about seeing the NSA being tapped and helpless, trying to figure out how to resist a technologically superior foe. I thought that that was an interesting way to look at things. It’s not just the NSA, but any unseen and unaccountable concentration of power that I’m trying to portray in this story. And right now that might be the NSA, but over time it might change. And I wouldn’t really put a specific nationality on it. It’s a story about progress and an effort to try to retain advantage.
So, yes, it was partly about the NSA but then it’s also partly about the broader issues — the broader issues of control and transparency.
TechCrunch: It feels like the power imbalance isn’t just a political power imbalance but it’s also the lack of understanding and awareness on the part of the public as to how these things work.
Suarez: And possibly interest. It’s been mildly infuriating to me to speak with even friends and people I know who shrug and say “Well, you’re not doing anything wrong, why should you worry about surveillance?” And of course you and I would probably say well, actually, it’s not just people doing things wrong. For example somebody running for Congress 20 years from now I think is going to have a very detailed record to have to defend. “Why were you standing next to this person every day for five years and this person later turned out to be a criminal?”
I think that is why these revelations were powerful. I don’t think that many technology or IT people were surprised by this, but I think it became much more personal with Snowden. Now, it’s dying down again but I think there will be more revelations that hopefully wake people up. We can’t just be passive. Being a citizen in a democracy really does require some interest.
TechCrunch: Were you also thinking at all about the power imbalance between a wealthy nation and a poor nation, both in terms of their military might as well as just access to healthcare or plentiful food?
Suarez: Well, that certainly is part of it. Although I would say that a billionaire in a third world nation lives very much like a billionaire elsewhere. I mean they create an enclave, and they have satellite uplinks and they have jets and things like that. So, yes, the great majority of people in underdeveloped countries would live a much more technologically backward life, although it’s a mix. Again, they might skip the hardwire telephone networks that we have. I’ve never been to Africa, but a number of people that I talked to who have been to various places in Africa talk about how great the cell service is. And here I am in a first-world nation having to seek a hill top to talk to you on the cellphone.
I think technology is spreading and I think one’s experience of technology is going to relate increasingly to class, not so much to country. There are areas in parts of this country that look very technologically backward and abandoned by society in general. I wouldn’t say that they resemble the third world exactly, but they are not experiencing technology and its advantages like the rest of the country.
TechCrunch: If there’s not somebody out there like the Bureau of Technology Control inhibiting progress, what if anything, do you think is actually slowing down scientific progress? Or has progress actually slowed down?
Suarez: I definitely, for the record, don’t believe that there is a BTC squelching progress. But to me it was a fun thought for a story.
Back when I was a kid, the space shuttle was going up. We were going out into space, we were going to do these big things. Everybody assumed we’d have fusion and things like that by now. I think the difficulties of those tasks were certainly underestimated, but I think it is a function of a couple of things. One, I think there is sort of a cosine wave of innovation. I think a new field of innovation will occur, and then a whole bunch of technologies will spring up around that.
You see the long mark of the internet and how it’s really starting to pay off and change society now. We probably thought it was doing that in the 90s, but it really kicked in just recently. But I think a lot of the innovation in Silicon Valley, sort of the venture-backed innovation is more incremental. And I think that’s because investors are looking for returns.
Let’s say a new idea for a company is founded it kicks off rapidly. Very often what happens is a larger player purchases that company and then the founders work at the new subsidiary for a little while, and then they leave and then they start their own ventures that are typically variations on the big idea that they had. And then venture capitalists start investing in variations of that idea. Social media is a great example. There are hundreds and thousands of these social media startups. So I think a lot of this is chasing the same sort of incremental innovation.
In that sense I do think that government, that nation states serve a really vital interest in innovation. The BTC that I was depicting in Influx is really a distortion of it, a sort of a cancerous growth. It’s something that was allowed to get out of control because it was secret. But investing in just pure research and development, the US government, pretty much every major government, has been doing this for a while, and of course these are the types of things that result in the Internet. These things where we don’t see a pay off immediately, so venture capitalists are likely to put the money in.
Low earth orbit, getting into space is another great example. I don’t think you would have seen a lot of companies investing in it in the 60s and 70s unless the government was investing in it. It was incredibly difficult and very expensive thing to do. We didn’t do it just for economic gains. We did it for prestige. We did it for the challenge. And also for strategic importance. And it was only decades later that we started to see venture capitalists talk about going to space. But I think that’s because the big, big problems were being solved at a governmental level.
Now, why aren’t we seeing these huge things solved? It may be part of the innovation cycle, that the next things we’re trying to solve will require either some greatly increased computing power to model these things, some barrier beyond which when we cross it there will be another flowering of real serious innovation akin to the railroad or something like that.
Just a few years after the invention of the piston engine, the Wright Brothers invented the airplane that actually flew. What I think it required was some form of energy that would be light enough to push airplanes into the sky. And almost the minute that was available suddenly that innovation started occurring. So, I think it’s going to be one of these keystone type technologies that opens up a whole new avenue that will result in innovation.
TechCrunch: What’s your research process like? Did you have the idea for the gravity mirror and then research how that could be possible? Or did you get the idea for the gravity mirror from the research that you were doing?
Suarez: The idea came first, and then I had to justify it. That’s not always the case. And of course it changes from book to book depending on how much I know about a topic. For instance cybersecurity I knew quite a bit about. But with Influx, the gravity mirror was really a component of the bigger idea which was the BTC, the idea that you have that we’re really 60, 70 years more advanced than people commonly know, that technology is more advanced and how that would happen and coming up with an innovation that would really, really change things and modifying gravity came to mind.
TechCrunch: Did you have a lot of knowledge about physics before you started researching the book?
Suarez: Not a lot. I’ve always been interested in it just as a curiosity. As a kid I read Cosmos, watched documentaries. I’ve always been interested in science. Space exploration in particular. I’ve written software before that modeled orbital mechanics for various games and things like that. I’m aware of how gravitation projects outward, some of the formulas. But understanding how it might fit into the various models of the universe, string theory and brane cosmology, all those things, I wasn’t aware of those things prior to researching this book. Now that I’ve done it I’m more interested in it than ever.
TechCrunch: When you research a book, do you do the research and then write the book or is it a concurrent process or a little bit of both?
Suarez: Yeah, it’s a little bit of both. If you ever do [write a book], be aware of this trap. Research is fun and you can spend an endless amount of time on research. After I wrote Daemon I was writing Freedom. I spent a bit too much time on the research. I probably had twice as much stuff than I could actually use. Research is a blast being able to go and pursue and learn something just because you want it because it’s part of a story.
What I’ll try to do is block out the story and then I’ll see where my weak spots are in terms of my knowledge of various subject. And it’s not just technology. It could be knowledge of a country or culture that’s going to be part of the book. And then as I learn those things sometimes the story will change. Actually, pretty much every time the story changes simply because in doing the research I find something really interesting that I want to incorporate more fully or weave into the story. I’d say the research component is probably 50% of the book writing process. For me anyway.
TechCrunch: Are you still doing a lot of IT consulting or are you a full-time writer now?
Suarez: I’ve been full-time writing for a number of years. And it’s been quite a change because I used to work with teams of people on a very knotty, very complex technology problems and that was kind of cool in a way. I really miss that social element.
I sort of mothballed my business a few years back just because the writing turned out very well. There’s a part of me that I do want to keep my hand in the game and of course I’m constantly learning about software and development tools but not in the same way that I did before, to solve a real meaty enterprise level, mission critical problem. It’s because I want to keep up or I see something interesting and I play around with new tools. I don’t actively consult right now, but I do keep up with these things.
TechCrunch: Was that a goal for you, to be a writer? Did you just kind of come into writing on accident or was it something you always wanted to do?
Suarez: Something I’ve always wanted to do. I have an English literature degree, and of course when I was young I wanted to be the next great American novelist. And then I just got busy doing other things. Life intrudes. I tried to write a novel early on. I think I didn’t have the discipline at the time.
I had wide-ranging interests. I was always interested in technology. As a society, America was just trimming every ounce of fat from our communications, transportation, logistics and other networks, that I started thinking of it that it’s becoming a monoculture. A lot of the same machines hooked together.
When we saw things like Conficker sweep through, or Slammer sweep through all these systems, it started making me wonder whether or not we were building a house of cards, a very lightly constructed, not very resilient infrastructure. But if I wrote a whitepaper about that, who the hell would read it? So I started thinking, “Y’know, I’m going to write a thriller.” Because I liked entertaining stories. I would read thrillers occasionally and I thought that that was the best form to really explore the issue and popularize it. And thankfully it worked out pretty well.
TechCrunch: What do you think of Bitcoin? It actually sounds like it was something that would be out of Daemon or Freedom.
Suarez: Yeah, I’ve been watching this pretty closely. I don’t mind Bitcoin. The idea I like very much. But one thing that concerns me is the idea that you are burning a valuable resource to create this fiduciary fiat currency. It is using electrical energy to create this artificial thing that doesn’t have inherent value. It has perceived value. If such a thing could be connected to something that represents inherent value, then I’ll be really, really interested in it. Like maybe it represents joules of electricity or whatever. Something that represents energy available to do work or something like that.
I don’t have any carefully thought out solutions as the people who designed Bitcoin, but I wonder where that’s going to head because let’s say another Bitcoin-like currency were developed once Bitcoin tops out. I wonder if burning all that energy will somehow cause issues later on.
TechCrunch: So, what’s next for you? Are you working on another novel or do you have to do a book tour? What’s on your agenda?
Suarez: I’m going to be going to various locations up north and pretty much west coast. I do a very abbreviated book tours. I’m going South by Southwest in March, I’m going to be on a sci-fi panel there that MIT Media Lab is hosting.
And yes, I am working on another book. I never really talk about the books that I’m working on. It’s something I’ve always not done. But yes, I’m working actually on several books. I don’t know exactly which one I’m going to dedicate all my time to just yet. I’m at a crossroads there.
But there are also other mediums that I’m looking into right now. I’ve done a couple of film deals now for my books and I’d like to try to pursue that as well. I love books, and yet I’m looking at the changes in the publishing industry and I’m thinking I may want to be in other mediums as well. Not exclusively in other mediums because I always love books, but I might try to branch out a little.
These days, it really seems we can’t go a week without some big site getting hacked. The latest target? Kickstarter.
Kickstarter announced on its blog (and via an email sent to customers) that hackers had found their way into certain parts of their database.
The good news: No credit card information was accessed — and even if it somehow would’ve been, Kickstarter doesn’t store full credit card numbers.
The not-so-good-news: they’ve detected that the hackers were able to access a database that contained usernames, email addresses, mailing addresses, phone numbers, and encrypted passwords. That “encrypted” bit is a bit of a plus — but given that no encryption is uncrackable with the right resources, you should absolutely change your password anyway.
Kickstarter says they were alerted to the breach by law enforcement officials (which law enforcement group, specifically, wasn’t mentioned) on Wednesday night, that they immediately closed the exploit that allowed the breach to occur, and that the last four days have been spent investigating exactly what was accessed.
Update: Kickstarter has updated its blog to answer a few questions that they were seeing a lot of. Here’s what we can glean from it:
- Passwords were protected in one of two ways. Old passwords were salted and hashed with the SHA-1 protocol. Newer passwords were hashed with bcrypt
- The company says it took 4 days to alert customers because they had to wait until they’d “thoroughly investigated the situation.”
- Two accounts showed (unspecified) unauthorized activity; both of those accounts have been re-secured.
- If you use Facebook to login to Kickstarter, the company says your FB account hasn’t been compromised. They’ve reset all Facebook tokens, which severs any ties Kickstarter has to your Facebook account until you manually give it permission again.
We’re at the end of a week where snow was on the ground in 49 out of the 50 states in the U.S. What better way to escape the winter blues than by virtually pulling up your chair to the TechCrunch writer roundtable for a new episode of CrunchWeek, the show in which a few of us bloggers talk about the most interesting news stories from the past seven days in tech?
In this episode, Leena Rao, Ryan Lawler and I discuss Comcast’s $45 billion bid to buy its fellow cable behemoth Time Warner Cable, the rapid rise of the simple and addictive mobile game Flappy Birds (and the shocking decision of its creator to take it down at the height of its success), and how the latest Snapchat hack by an apparent fruit smoothie enthusiast shows the importance of security for all kinds of apps.
When Dave Fontenot moved to the University of Michigan from his home in South Florida in the fall of 2011, he brought the standard equipment every freshman college student needs -– clothes, shoes, books, and a backpack. One item, though, was missing.
“I didn’t own my own laptop,” he said.
That didn’t stop him from attending his first hackathon several weeks later at Hacka2thon, where he built his first website. The experience ignited his enthusiasm, and over the next two years, Fontenot would found and develop MHacks into one of the largest hackathons in the country, last month hosting more than 1,000 students from across the Midwest and the United States to Michigan for a weekend of coding. “#hellyeah,” as Fontenot puts it subtly.
For the first time next semester, more than 10,000 students are expected to participate in one of 10 mega-hackathons, in a discipline that graduated just about 16,000 students in 2012. That could mean that a majority of CS students will have participated in a hackathon before graduation in just the next few semesters.
Hackathons, though, are just one part of the coming transformation of computer science education. Once a theoretical subject to the chagrin of many undergraduates, computer science students are increasingly finding outlets like hackathons, open source projects, and startups to learn the applied skill sets desired by industry – and are getting the job offers to prove it.
Yet, this rebuilding of the pipeline for new engineers poses deep questions about the future of educating software developers. What is the proper role of universities and degree programs? How should the maker culture, which exists at the heart of these projects, connect with the traditional education mores of research universities? And at a time when access, particularly for females and underrepresented minorities, remains a deeply salient issue, how can organizers ensure that programs lower rather than raise any barriers to new entrants?Changing The Culture
One of the defining moments for Dave Fontenot was PennApps, the first and one of the largest student-run hackathons in the United States. He had heard that the organizers were paying students to attend from other schools, and so he worked to recruit his fellow Michigan friends to join him, eventually convincing around 25 of them to trek to Philadelphia. The environment and atmosphere were rousing. “We came back and half the people switched their majors to CS,” Fontenot recalls.
Alexey Komissarouk, who founded the PennApps Hackathon in fall 2010, believes that part of that excitement is the ability to create using one’s own skills. “They learn to make, as opposed to doing homework,” he says of the students attending these events.
There is clearly demand. This semester, there are expected to be 10 or possibly more student mega-hackathons across the country, up from three last semester, and their growth appears likely to accelerate. To assist in that growth, Komissarouk helped to organize HackCon last month to teach student organizers how to run effective hackathons. Even so, Fontenot, a speaker at the seminar, notes that “the evangelism is spreading faster than we can scale the events.”
Computer science majors have traditionally followed several different career paths, including corporate software development and academic research. That divergence between theoretical and applied work has been a key battleground in the development of computer science curriculum since the discipline was formed.
Computer science is a relatively young discipline in academia, coming out of the emergence of computer technology for missile targeting near the end of World War II. Much of the education in this early period was informal, or attached to other academic programs like mathematics or electrical engineering. Progress moved at a much more torrid pace starting in the 1960s, with the rise of formal departments and divisions of computer science.
It was clear in those early days that computer science had enormous potential, but there were deep concerns on the state of the discipline. For researchers at the time, the question was whether computer science should be seen as a technical and applied subject, or whether it should develop a coherent set of abstractions that would afford it intellectual legitimacy within the academy.Related Videos
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The debate did not last long. Under pressure at universities like Stanford, the discipline quickly moved in a theoretical direction. This can be seen in the development of Curriculum 68, which promulgated a set of model computer science programs in 1868. Computer science education was focused on mathematics and data structures, with limited credit to be awarded for software development. That direction still underpins many of the top computer science programs in the United States.
Since the publication of the landmark curriculum almost five decades ago, however, employers have completely changed their hiring standards. They increasingly desire engineers ready to develop software from day one, and target graduates who already have significant software experience under their belts. This is particularly acute at startups, many of which lack the mentoring and training infrastructure to bring new graduates up to speed.
It is telling then that these hackathons are almost exclusively student-run, filling in the gap between their enthusiasm for building new products and their curriculum’s emphasis on theoretical constructions.
Fontenot believes that “People are going to realize that this is more than just a hobby, but an educational revolution.” He emphasized that the skills developed at hackathons go beyond just pure programming, and include product design and working in teams, skills that have traditionally been excluded from computer science work.
Komissarouk, though, cautions that the changes need to be seen more as additive to a traditional computer science education, rather than a replacement. “Hackathons are a reasonable adjustment of the CS curriculum. Penn’s IR [international relations] department has a huge MUN [Model United Nations] program, our creative writing program has a writing program, but all we had in our CS curriculum was a bunch of PhDs talking about advanced research. Which is cool, but it’s not what many students will be doing after college and it’s not why most of them came to CS.”Learning Through Open Source Projects
Hackathons, though, are only one means to building a new product. Open source projects are increasingly being seen by both employers and students as a viable means to develop key skill sets in new graduates, and inculcate a long-term development mindset.
Google has offered its Summer of Code since 2005, placing about 7,500 students on prominent open source projects around the world. But it is not just large companies that are focused on the potential of students in open source, but startups as well.
Quinn Slack and Beyang Liu founded SourceGraph to help developers find usage examples of code across codebases. They see students playing a key role in expanding the company’s knowledge of development and its role in the open source community. Last month, they announced the selection of 10 Open Source Fellows working on a range of projects, from MIDI input libraries to data-analytics tools for political analysts. They hope to shortly select a second class of fellows.
“Working in open source gives students experience with real-world code, teaches them how to collaborate with others on software projects, and builds their reputation as a programmer. And it can be super fun,” Slack writes to me in an email. “By getting involved in open-source, students see how some of the best, brightest, and most passionate programmers actually do things.”
For Julia Lee, a computer science undergraduate at Stanford and an inaugural Sourcegraph Open Source Fellow, she appreciates that the projects are more involved and closer to real-life software development.
“A lot of Stanford CS courses have final projects, but projects tend to be smaller than many open source projects.” She also likes the flexibility to define her own project. “I’m teaching myself Android development in the process of building an app that public health researchers from Stanford will use later this year.”The hackathons are killing the career fairs, particularly the engineering school ones. [Recruiters] want people who can actually build something. Recruiting
For companies like Sourcegraph, it also doesn’t help to get an early introduction to some of the top software engineering graduates out of Stanford, Berkeley and other schools. Indeed, everyone I talked to agreed that recruiting developers is going to fundamentally change in this new world.
Fontenot from MHacks is very clear on this point. “One thing that is very concrete, the hackathons are killing the career fairs, particularly the engineering school ones. [Recruiters] want people who can actually build something,” and demonstrating that ability through hackathons or other projects gives candidates a “huge competitive advantage.” Komissarouk from PennApps believes that hackathons are becoming a sort of “farm team” like the minor leagues in baseball.
The two see VCs and other recruiters pouring into hackathons to find the best talent. Fontenot particularly noted the visibility of Andreessen Horowitz at these events. “I did a survey on where [participants] started their job search, and close to a majority said that A16z’s website was the key place they went through,” Fontenot says. “They have been very effective, since they bring a lot of top founders and engineers from their portfolios decked out in A16z swag and it gives a great impression.”
Fontenot believes that hackathons are already starting to replace the process of interviewing at a company. “For companies, it is all about relationships. It is like a meritocracy, where you bring your best engineer [to these hackathons], and he actually has to help mentor and help a team to achieve some large problem. You don’t need to interview the candidates, you are seeing them right there at crunch time. You don’t need to evaluate them, because your engineer is experiencing the person live.”Access And Acceleration
One benefit of these events is their democratized nature — anyone can sign up for a hackathon or work on an open source project and receive credit for their work.
But Komissarouk points out the problem of access here. “On one hand, it’s great that hackathons are becoming more popular. The fact that more engineers are being exposed to the fact that theirs is a maker profession, and there’s more to CS than homework assignments and jobs, that’s wonderful. On the other hand, as the bar for what makes a great hack goes up, hackathons become more exclusionary and intimidating to exactly the kinds of people we want to attract.”
Indeed, while students in the past needed only graduate and apply to a company (perhaps with a small portfolio of class projects), today’s students have significantly higher expectations set for them. For instance, many startups use GitHub to keep track of code activity for potential recruits. That may make the hiring process a bit more transparent, but it also raises the requirements for students, who must actively contribute code before they may have even reached their first algorithms class.
Fontenot and other hackathon organizers are acutely aware of such concerns, and have actively worked to broaden the base of students in engaging in CS. “As you get bigger, you get more diverse,” he notes.
Slack of Sourcegraph sees the changes as a positive development, giving students the ability to accelerate their learning. “Today’s CS students will be the future leaders of the tech and open source community, so if anything we’re just helping them get there a few years sooner.”
That acceleration can already be seen in MHacks, where two of the seven top prizes were awarded to high school students. Indeed, Fontenot argues that if you want to get into college today, doing a hackathon is a particularly strong approach.
“At Michigan, we sent over 50 names of high school students to the admissions office, because they all want the next 10 Mark Zuckerbergs,” and will look at their applications accordingly.
But that acceleration comes at a potential cost. If students need to start demonstrating their aptitude for engineering well before college, that precludes a large number of students who may not even have access to a computer during their adolescence. And while the open and flexible nature of such programs are indeed positive for students, the more they become associated with recruiting, the more these programs will become about demonstrating recruitment potential rather than opening opportunities for further education.Conclusion
Like many professions today, software development is developing new rules for education and status identification. At one point, a degree from MIT or Stanford was the key ticket to a major Silicon Valley company, and from there, a start-up or a management role.
The new culture around hackathons and open source projects is going to upend this forced march. Students increasingly are engaging with startups earlier in their careers, and they are building products rather than writing code samples. With a continued focus on education, there is an opportunity here to solve the engineer crunch, and perhaps even expand the range of people who are involved in engineering the next great startups.
Top image: The MHacks Hackathon 2013 opening ceremony in the Crisler Arena on September 20, 2013 in Ann Arbor, MI. [By Joseph Xu, Michigan Engineering Communications & Marketing, All Rights Reserved, used with permission]
The Flappy Bird phenomenon shows no signs of slowing down, despite the fact that the original title was yanked out of the App Store by creator Dong Nguyen, whose newfound fame apparently became too overwhelming. But though “Flappy Bird” itself may be gone, the App Store’s top charts today are filled with clones that mimic the addicting, frustrating game that became this year’s viral hit.
However, that may not be the case for long. Word has it that both Apple and Google are now rejecting games that have the word “flappy” in their title.
According to Vancouver-based game designer Ken Carpenter of Mind Juice Media, Apple rejected an app of his called “Flappy Dragon” from the App Store. Apple told him “we found your app name attempts to leverage a popular app,” says Carpenter.
Apple told him the app was in violation of the following section of the App Store Review Guidelines:
22.2: Apps that contain false, fraudulent or misleading representations will be rejected
We found that your app, and/or its metadata, contains content that could be misleading to users, which is not in compliance with the App Store Review Guidelines.
We found your app name attempts to leverage a popular app.
Clearly, the only app “Flappy Dragon” would be leveraging is “Flappy Bird” – which, to be clear, is technically no longer present in the App Store.
This is just not my fucking week: Rejected. “We found your app name attempts to leverage a popular app.” Which app? FB doesn’t exist!?!?!
— Ken Carpenter (@MindJuiceMedia) February 15, 2014
Carpenter isn’t the only game developer affected by the policy shift, it seems. A tweet from Kuyi Mobile indicates that a small handful of developers attempting to launch their own “Flappy” clones have also been rejected for the same reason:
— Kuyi Mobile (@kuyimobile) February 15, 2014
This is somewhat odd, given that there are already several similarly named games on the market, including “Flappy Bee,” “Flappy Plane,” “Flappy Super Hero,” “Flappy Flyer,” and even “Flappy Bird Flyer,” Carpenter points out. Plus, there are clones that don’t include “Flappy” in the title, like “Splashy Fish” and “Ironpants” – #1 and #2 in the App Store’s top charts, at present. Meanwhile, others that include “Flappy,” but don’t lead with it, are also doing well: spot #3 is “City Bird – Flappy Flyer” and #7 is “Fly Birdie – Flappy Bird Flyer.”
In other words, the App Store’s top charts are being absolutely decimated by “Flappy Bird” clones. And users are still eating them up en masse.
But perhaps enough is enough? Apple may not want the App Store to be overrun with these spinoffs, especially because their proliferation is likely causing consumer confusion. The “Flappy Bird” craze reached mainstream media, which means everyday users who may not following each turning point in this ongoing saga are just hitting up the App Store and searching for a download.
Unfortunately, if Apple was trying to prevent these “Flappy Birds” clones from taking over the top ranks in the App Store, they’re too late. Now the new rejections have the potential of being seen as unfair since there are those whose “Flappy” knockoffs are still live and well-ranked…and raking in plenty of extra cash, too. The fair thing to do is force everyone to rename their “flappy” games, and/or pull “flappy” from their keywords. (Update: That may be the case! See below.)
Also of note, around the same time that developers were discussing the “Flappy” rejections on Twitter, movement in Apple’s Top Charts ground to a halt. Below is a chart that shows the average number of changes in the iOS Top Charts provided by MobileDevHQ. You can see it fell of a cliff, meaning the Top Charts were effectively “frozen” as of 2/14.
The charts soon returned to normal, which MobileDevHQ says makes it seem more like a transient error on Apple’s end, as opposed to an algorithm change.Google Rejects “Flappy,” Too
Apple isn’t alone in deciding to bounce the “Flappy Bird” clones from the app store, however. Both Kuyi Mobile and Happy Mage Games stated that Google is also rejecting app submissions that use “Flappy” in the title.
Says Carpenter, “Yeah, I was rejected from Google Play, too.”
“The first time I assumed it was because I included a phrase about ‘Flappy Dragon’ being the best flapping game to play now that ‘Flappy Bird’ is dead. My app was originally published with no issue and was online and searchable for a few hours,” Carpenter explains.
Shortly afterwards, Google removed it from search, but it was still visible through its direct link. Around 24 hours later, he received a suspension notice. “There was no ‘Fair Warning’ email, which Google claims to send before taking such actions. I checked and rechecked my spam folder to be sure. They just arbitrarily removed the app with no warning,” says Carpenter. ”The message they sent me simply referenced the ‘spam’ provision of the Google Play terms and did not specifically call out what my transgression was,” he adds.
After removing the competitor’s app name in the description, Carpenter resubmitted the game. After a few hours, it, too, disappeared from search.
We reached out to Apple and Google for comment, but given that it’s the weekend (and Apple doesn’t typically respond to inquires about App Store policy changes), there may not be an update on this post with the companies’ immediate response.
iQi is a hardware add-on that brings the tech Apple hasn’t — wireless charging (using the Qi standard) — to your iPhone without the need to put it in a bulky case. Think of it as akin to Bill Gates’ quest for sensation enhancing graphene condoms. Or, er, having some cake and eating it.
The slender iQi gizmo is designed to work with soft cases, including Apple’s leather iPhone 5 sleeve, so you don’t have to compromise the overall look of your iPhone just to be able to wirelessly charge it. Although, once this phone-hugging gizmo is installed, there will be a slight bump on your phone’s rear, i.e. where the case has to swell to accommodate its wireless-charge providing passenger.
Visually, this is an all-but imperceptible bump if you’re using Apple’s leather sleeve, but it’s a bit more sticky-outy when paired with some soft plastic cases. The slight swelling does mean the handset won’t now sit entirely flat on a table or other flat surface.
Wireless charging has huge potential, albeit much of that promise remains to come. For now it plays a relatively small role in the consumer electronics space — possibly making a few mobile owners’ lives slightly more convenient by allowing them to charge their device by sticking it on a charger plate, rather than fumbling around to plug in a power cord once per day. (Although wireless chargers still have to plug the charger plate in at some point, and make some space for it – and its unpleasing cable — on their desk.)
Nokia adding wireless charging to its flagship Windows Phone Lumia smartphones wasn’t enough to convert legions of iPhone users to the platform and save the once mighty mobile maker from having to sell that business unit to Microsoft. But that doesn’t mean there isn’t appetite for the tech, even among iPhone owners. More Android flagships are adding built-in wireless charging (including Google); yet Apple continues to stand aloof.
iQi’s Indiegogo campaign for its slender, soft-case compatible iPhone wireless charger, concluded a successful crowdfunding run last December, raising over $161,500 (from 2,350+ backers) — more than 5x its makers’ original target of $30,000. So even though Cupertino hasn’t seen the point of wireless charging yet a portion of iPhone owners are clearly keen. Or keen enough to shell out $25+.
But, is the iQi any good? Well, it certainly doesn’t look like much when my test unit arrives, being packaged in an envelope housed on a piece of card with a small paper user manual. But that’s a good thing: less, not more, is exactly the point of this iPhone wireless charger hardware hack.
It’s basically a couple of pieces of cardboard (smaller than a credit card in size), sandwiched around some low profile electronic innards, with a flexible connector sticking out one end that plugs into the iPhone’s Lightning connector port.
Plugging the iQi into your iPhone is pretty straightforward, although it helps to have a fingernail long enough to push the connector snugly into the port. At that point you just bend the flexible plastic ribbon over so the main bulk of the iQi sits flush with the back of your iPhone (that’s bend, not fold; the ribbon won’t stand up to any kind of creasing). A flat silicon disk is also provided in the pack which you can stick onto the iQi’s rear to stop it sliding around on the phone’s rear. Simples.
Of course you do need a Qi charger plate to use the iQi with — such as the KoolPuck or KoolPad — or another charger plate that uses the Qi wireless charging standard. You’ll also need a soft-case to help protect the iQi and keep it fixed in place — unless you fancy augmenting your iPhone’s rear with duct tape.
Now to the main issue: does the iQi actually work? Not, I’m afraid to say, reliably. Which may well illustrate why Apple thinks this nascent tech isn’t worth bothering with (yet).
Some of the issues I encountered while testing the iQi (with an iPhone 5) are likely those generally associated with the Qi standard. As my TC colleague John Biggs has previously noted, Qi is slow and finicky — requiring the user to align the device with the charging place in just the right place or no dice. Or rather, no juice.
Which isn’t a huge hassle per se but it is a problem for a device that only offers an incremental convenience boost anyway. To add to the irritation, when it’s not aligned, the iQi beeps persistently, like a mournful robot child in need of a bottle feed.
One time I left it charging — everything apparently going tickety-boo — yet when I returned to the house half an hour later I heard its urgent call. Turns out the phone was sitting there, where I had left it charging on the plate, now not charging but beeping. Stuck on 99% battery.
Perhaps the iQi cuts out charging when it’s almost full and beeps to signify this but, if so, that’s going to get really annoying if the moment it chooses to pipe up coincides with the middle of your night.
I did also have a missed call, which perhaps caused the charging function to cut out. Whatever triggered the Qi break, the iQi’s reliability evidently can’t be relied upon.
It had been working prior to this point, but after this break it stubbornly wouldn’t resume charging — even after I tried draining the battery a bit to give it more scope for juicing. I also swapped out the KoolPuck charging plate for the KoolPad. But it still didn’t want to charge (even though the charger light on the plate switched to blue, as if charging, yet the battery indicator did not respond).
Next I tried removing the iPhone sleeve. Still no joy. So, finally, I did the inevitable reboot of removing the iQi and then plugging it back in again. And lo it started working again. So, yeah.
Another caveat: this is a hardware hack of the iPhone. iQi Mobile notes on its Indiegogo page that it’s not part of the MFi program, and “as such is not Apple certified” — so, while it claims the iQi “works well with iOS 7.0.4″, that statement carries an implicit caveat that it can’t guarantee smooth operation with future iterations of Apple’s OS.
So, down the line, iQi owners might have to choose between their iPhone having a sporadic wireless charging ability, and their iPhone having iOS 8. So, yeah…
If you really are desperate for an iPhone that supports wireless charging, and are willing to live with temperamental tech while you wait for Apple to take the plunge itself, the iQi does get around the need to stick a bulky, unattractive case on your iPhone. It’s certainly very visually unobtrusive, especially paired with Apple’s leather case.
Just don’t expect your phone to sit entirely flush with any flat surface, ergo prodding a resting-on-a-table iPhone’s screen or pushing its home button will result in the handset rocking about or lifting up like an angry ouija board.
But — above all — don’t expect the iQi-powered wireless charging to ‘just work’. Much like the nascent convenience of wireless charging generally, the additional functionality offered by the iQi can be marginally useful sometimes — but only when it’s not being a bit annoying.
This past week brought the news of a fairly significant development for Square — the rollout of Square Stands in bars, Whole Foods restaurants, and other venues. This comes a year-and-a-half after the huge deal the payments company inked with the coffee and beverage giant Starbucks.
The lengthy wait between these big deals was a signal to some in the payments world that perhaps Square wasn’t ready to attract large retailers to drop legacy systems and processing deals.
But then the Whole Foods deal was announced. While the partnership isn’t for the grocery checkout side of the business, it’s still a lucrative deal. And we’re hearing that Square is aggressively working to do more custom pricing for merchants, especially chains and big names, in order to bring in bigger names and retailers.
Square is also now crafting a big sales team; the company is staffing up on sales people, we hear, which is something CFO and operations head Sarah Friar had said in the past that the company was trying to hold off on.Custom Pricing
Square’s pricing is 2.75 percent for swiped transactions, Square Wallet payments, and Square Market transactions, and 3.5 percent + 15 cents for manually entered transactions. The company cut a deal for custom pricing for Starbucks and we’re also assuming for Whole Foods, but previously this was done on an exclusive basis.
Now, any larger chain merchant can apply for custom pricing via Square’s site. For example, Square tells TechCrunch that the Butterfly Studio Salon in New York City is processing millions in payments per year, and has negotiated a custom rate of 2 percent for each swipe using Square. The custom pricing allows merchants who are growing to stay with Square instead of moving to a POS system with better rates.
As Adlin Palencia, manager of the Butterfly Studio Salon explains, “I switched to Square because it was simple and had a flat rate for all cards, including American Express, which is how many of my customers like to pay. As the business has grown, I’ve been able to stick with Square because my custom rate saves me more than $2,000 a month, which is money I can invest back into my business.”
Palencia considered switching from Square to another POS system as her business grew, but she stayed with Square because of the custom pricing deal she got.
Square commented on the change: “As our sellers continue to grow, we want to ensure we are growing with them. Custom rates, like many of our other new offerings, make Square a great fit for larger sellers.”
The fact that they are open to negotiating with mid-size to large merchants, as well as large ones like Starbucks, is telling. It’s likely that Square was “encouraged” to start negotiating with some merchants on fee structure after eliminating the flat, monthly fee structure last fall.
The question I have is whether Square is making any money off of the deals where the company goes down to 2 percent per transaction (or less in more high-volume deals like Starbucks). We’re also not sure what the exact criteria is for merchants to be eligible for custom pricing. And in terms of sales, it’s still not clear what Square’s actual revenue looks like beyond what the company is processing per year.Sales
Square has notoriously done little marketing beyond simple advertising. At one point the company did a TV commercial, but for the most part, Square has prided itself on word-of-mouth marketing to target small to medium-sized businesses. As Friar infamously said at a Goldman Sachs Technology and Internet Conference, she doesn’t want to be involved with hiring sales people. But that tune has changed, and Square has been quietly building an army of sales teams focused on bringing small to mid-sized retailers onto the platform.
It’s unclear how big the sales team will be, but according to this LinkedIn job posting for a sales recruiter, “Square is beginning to build a world-class Sales team for the SMB and Mid Market marketplace.”
The company has attracted the attention of large brands as well more recently, with the Whole Foods partnership, as well as small promotional deals with Godiva and Uniqlo. But it seems like with these deals, these larger retailers are dipping their feet into the pool, and not diving in. Whole Foods has not enlisted Square stands to replace its cash registers on the grocery line, and it’s unclear yet if the promotional partnerships will amount to a bigger deal. Burberry has been using Square to take payments at a few of its stores, but it’s not a widespread implementation.
Another area where Square is beefing up in the hope of attracting larger retailers is in customer support. Square is adding phone support, which the company previously didn’t have available to merchants. The lack of phone support had been a pain point for many merchants, who want access to a live person to get problems fixed in real-time. If Square is pitching large retailers on switching from legacy systems, then phone support is a must.
While Square still has consumer-facing apps (Square Wallet, and most recently peer-to-peer payments app Square Cash), these changes are squarely focused on the merchant services side of the business. And all of these moves aim to collectively accomplish the goal of attracting more large merchants to the platform. As the company matures, and is potentially looking at a public offering, Wall Street will be looking not only at the number of small merchants and revenue, but also how many mid-size to large merchants are willing to forgo legacy POS systems in favor of Square.
Lyft is raising yet another big round of funding, according to sources. The company, which is seeking to make ride-sharing mainstream in cities across the U.S. and around the world, is expected to use the new cash to fund expansion into new cities and territories.
We’ve heard Lyft has pitched a number of venture firms and late-stage institutional investors, but hedge fund Coatue Management seems to be in the lead for the deal. Coatue has recently invested in hot companies like Box, Snapchat, and HotelTonight, and is part of a growing trend of hedge funds making bets on later-stage startups with traction.
Andreessen Horowitz, which led Lyft’s $60 million Series C round, is also expected to contribute a large chunk of cash. Other investors in Lyft include Founders Fund, Floodgate, Mayfield Fund, K9 Ventures, Ooga Labs, fbFund, and Keith Rabois.
The company was founded as Zimride back in 2007, but it wasn’t until 2012 — when it shifted from long-range to on-demand ride-sharing — that things began to really take off.
With the launch of the Lyft mobile application, it broke new ground in enabling passengers to get rides from other people with a car and spare time on their hands. Due to the success of the on-demand platform, the company rebranded as Lyft and sold its legacy Zimride assets to Enterprise Holdings last summer.
After its initial stint in San Francisco, Lyft began expanding to other cities early last year and now is offering service in 20 markets throughout the U.S. But like Uber, which also offers on-demand rides via mobile app, Lyft has plans to aggressively increase the number of international cities that it operates in beginning this year.
The additional funding will be vital to getting it on the right track toward that goal, as it bulks up operations both in its San Francisco headquarters and in remote offices around the world.
In the meantime, Lyft is trying to get more regulators and local officials comfortable with the idea of letting unlicensed drivers give rides to passengers around town. To that end, it recently hired Google X legal director David Estrada as its VP of government relations.
The company also announced the creation of a peer-to-peer rideshare insurance coalition that includes other transportation companies, as well as regulators and insurance providers, to figure out the tricky issue of insurance for its drivers.
Lyft, Coatue, and Andreessen Horowitz all declined to comment.
The Gillmor Gang – Robert Scoble, Keith Teare, Dan Farber, Kevin Marks, and Steve Gillmor — Boy, the way Glenn Miller played, those were the days. The Gang was a deck stacked against the Gillmor young versus old, Lorde versus The Stones. Just when we finally convinced everybody Beatles was spelled with a Capital T. The talent drought continues.
Sure, there are great artists. And even greater records Et tu Get Lucky. The Gang circles the distribution, the locked up soundtrack of our lives, the Age of Streaming. And in the end, the love you make is equally to the haul you take.
@stevegillmor, @scobleizer, @dbfarber, @kteare, @kevinmarks
Produced and directed by Tina Chase Gillmor @tinagillmor
Almost any time someone asks about the Y Combinator experience they ask, “Was it worth it?” It’s a difficult question to answer concisely given the complexity of such a program. During Y Combinator we had a chance to make a lot of friends, learn from experienced entrepreneurs, pitch to investors, and even sign up valuable early adopters.
While it’s difficult to quantify many of these benefits, one area we can quantify is fundraising. We have been collecting data on fundraising since day one and were fortunate enough to attract investors both before and after YC. We looked back over the data recently to see if we could quantify what Y Combinator is worth.
Midway through the fundraising process, we realized that the single most important indicator of success (getting a check in the bank) was whether or not the investor was introduced to us (inbound), or whether we solicited them originally (outbound). On account of this we noted whether each investor was inbound or outbound.
Also, since we were attempting to measure the value of Y Combinator, we broke the groups of investors into two segments: before we found out we were accepted into Y Combinator and after. The first we’ll refer to as Pre-YC, the second Post-YC. This not a division of round or terms, just whether they were before we were accepted Y Combinator or after.
To date we’ve raised $3 million from SV Angel, CrunchFund*, Mesa+, Kevin Barenblat, Lars Kamp, Rahul Vohra, Ullas Naik, Shawn Bercuson, Initialized Capital (Garry Tan, Harj Taggar, and Alexis Ohanian), Sherpalo Ventures (Ram Shriram), Alex Polvi, Google Ventures, Charlie Cheever, Mike McCauley, David and Ryan Petersen, Jenny Haeg, Jody Glidden, Dalton Caldwell, Funders Club, Adrian Aoun, Fritz Lanman and Hank Vigil, Charlie Songhurst, Bill Lee, David Sacks, RightVentures, Capricorn, A Grade, Matthew Cowan, Sean Byrnes, Founders Fund, Valor Capital, Greg Kidd, Jeffrey Schox, and more.
Being “accepted” into YC is synonymous with securing an investment from YC; so we’re going to say that one’s presence in Y Combinator has no impact on whether or not Y Combinator chooses to invest.
In total we took 121 calls/meetings with potential investors, and received a check from 43 of them. That’s an average of $25,041.32 per call/meeting.
As we alluded to earlier, the most important difference was between inbound and outbound investors. To be clear, we’re defining inbound as either the investor contacted us directly, requested an intro, or someone in our network introduced the investor to us without our asking. Anything else (e.g. requesting the intro, contacting the investor, etc.) we considered outbound. We realized what a critical signal this was midway through our fundraising and adapted to it, as you will see in the breakdown of the two rounds.
All of our investors – every single one of the 43 – contacted us or requested an introduction through their network. Even when we were introduced by a friend at our request, these fared the same as all the cold outbound requests. What we realized is that when you request an intro the introducer is doing something they weren’t naturally inclined to do. If they had thought you were that hot of a deal they would have already introduced you. Not only are you decaying the relationship with the friend, but also that friend’s relationship with the investor, since they likely won’t invest in you (and won’t be as interested when they have a hot deal to show the investor). In our experience, the only intros that were worth anything were the ones that weren’t requested in any way. All others were a significant waste of time.
One last point on this, almost any VC will take a meeting with almost any entrepreneur. Why? Because that’s their job, to meet with entrepreneurs. It also means that if they schedule it on, say a Friday in SF at 11am, they can: a) avoid driving down to Sand Hill altogether, and b) arrive in Tahoe in time for a few evening runs. Be wary in thinking it’s anything more than that. The trajectory of your idea or company has yet to be set, and you’re burning valuable time chasing capital from unlikely sources instead of doing the most attractive thing to investors: building a valuable company.
We didn’t track time between meetings and close or money in the bank because we saw very little variance in that. Almost everyone that committed and signed the docs wired the money within two weeks. And if they didn’t they let us know if it was going through complaince or something (at larger funds).
Additionally, with first contact to commitment, 90 percent of the time this was within two weeks. There were about 10% that waited to decide, or waited for other investors to join the round, but I could count them on one hand and there was no difference pre or post YC.Pre Y Combinator
Our first seed round began when SV Angel emailed us in September 2012, since that was our first fundraising discussion, and ended April 28, 2013 when we were accepted into Y Combinator.
Although we had SV Angel in from very early on, and then a few others, it took six and a half months to raise $530K from eight investors. Had we stopped after our third investor, Mesa+, we would have been at $450K over three months. Better, but not by much.Post Y Combinator
Our second round of funding began that day we were officially accepted into Y Combinator, April 28, 2013. With that we were able to raise a quick $250K, stopped talking to investors for the duration of YC, and then began raising again a few days before Demo Day. Unlike our first round, we didn’t raise at all during Y Combinator, so the period lasted only about a month and a half. As you can see, we had a much easier time fundraising after being accepting into Y Combinator.What Is Y Combinator Worth?
When it comes to fundraising the effect of Y Combinator cannot be overstated. In our case, Y Combinator meant raising more than four times as much money in a quarter the amount of time. We were able to attract more investors, and receive an investment from a higher percentage of them – spending less time in meetings and more time building EasyPost.
Does this mean you’re out of luck if you didn’t get into Y Combinator? Absolutely not. In raising $3m from 43 investors we learned a lot of ways to stack the cards in your favor. And since we learned many of them before we were accepted, they amplified the effects of Y Combinator dramatically.
*CrunchFund is owned by TechCrunch founder Michael Arrington.
Dosomething, a not-for-profit focused on making volunteer work and social change exciting to people under 25, is going after its key demographic where they’re comfortable: Snapchat.
The company used the photo-sharing platform, which has yet to launch a formal advertising or brand program, to run a Valentine’s-themed campaign in NYC.
“We noticed that teenagers, our core demographic, were flocking away from Facebook,” said DoSomething’s Colleen Wormsley. “But they love Snapchat.”
DoSomething first signed up for a Snapchat account in November of 2013, with Bryce Mathias in charge of the channel. The company alerted their Twitter following that they now had a Snapchat account, and simply waited for requests to come in. Mathias, a male model, mostly sent selfies to new friends making goofy faces.
The team learned that they received more response snaps during school days, so Mathias began setting aside a block of time just before lunch to respond to everyone’s snaps.
As February rolled around, DoSomething launched a Love Letters campaign that encourages teens to create Valentine’s Day cards for homebound seniors. As a part of the campaign, the not-for-profit created a Snapchat story promising that Mathias would deliver these Love Letters on Valentines Day dressed as cupid. In the middle of New York. In February.
All the followers had to do was text to vote for how he should deliver them: by bike, ice skates, or around Central Park. Once they voted, they would be sent a call-to-action to create their own Love Letter for a homebound senior.
In the end, 11 percent of the people who viewed the story asked him to go ice skating. Of those who texted in to vote, 57 percent signed up to participate in Love Letters.
Putting those figures in perspective can be difficult without much transparency into Snapchat’s monetization plan, but we may not have to wait too much longer.
The interactive portion of the campaign might be just the ticket on a platform where social media responses and feedback can’t be shared or showed off by brands. But that works in those brands favor. Younger demographics would much prefer a more authentic relationship with the brands they like, and with 400 million snaps sent per day, there could actually be potential to build lasting conversations between brands and younger consumers.
Snapchat was rumored to be building out a sales team last summer, and the company certainly has people in place to communicate with brands behind the scenes.
Snapchat’s Josh Stone responded to DoSomething shortly after they published the story to welcome them to the platform and lend a hand with any support or feedback they might need.
The liberal wonderland of the San Francisco Bay Area has one of the highest concentrations of wealth in the country. Twitter’s IPO, alone, created an estimated 1,600 millionaires. But, are the local residents catching any of the dollar bills being shaken from the post-IPO money trees?
It’s been hard to decipher the broader impacts of technology on the average San Franciscan because heart string-tugging anecdotes have clouded the narrative. Critics of tech companies make headlines by protesting Google’s private buses and indirectly linking their existence with the surge in housing evictions. ”There’s a war brewing in the streets of San Francisco,” wrote former San Francisco Mayor Willie Brown.
On the other hand, tech champions like to trot out small business owners who have benefited from re-locating tech HQ’s to blighted areas of the city’s historic Market district. So, to cut through the cherry-picked anecdotes, I asked San Francisco’s local economists what their take is and, as you’d imagine, they fall somewhere between the techno-utopian dreamspeak that you sometimes hear in the industry and the dire descriptions of the activists.
One thing is clear: they believe that the money flowing into SF is a good thing and is bolstering the local economy.
There is a “but” in the economic optimism, and it’s big enough to need two plane seats: skyrocketing rents are pricing many locals out of the city. Some have managed to fasten themselves to rent-controlled properties, but many have been forcibly evicted from their homes. On balance, tech money has built one of the sturdiest economic shelters from the ravages of recession, but those who get hit, well, they get hit hard.
Local Multipliers Makin’ It Rain
“Our analysis suggests the tech sector is responsible for the vast majority of the economic growth in San Francisco since 2010,” said San Francisco’s Chief Economist, Ted Eagen. “In 2010-2012, the latest year we have complete data, local inflation has been 2.6%, while wages for all workers have increased by 4.5%.” About 2/3rds of those approximately 40,000 new jobs do not require a computer science degree or a closet full of expensive sneakers.
Partly thanks to the tech sector, the San Francisco Bay Area enjoys the 3rd lowest unemployment rate (4.8%) of California’s 58 counties. What accounts for this? Berkeley Economist Enrico Moretti argues that technologists have a special bond with the local economy.
“Anytime there is a job opening for a software engineer at Google In San Francisco, there’s an increase in the demand for local service workers,” he said. On average, Moretti says that every tech job creates five in other industries, as compared to just two from a manufacturing job. In part, because tech jobs just pay more there’s more disposable income to spend on maids, lawyers, and clothing.
“There must be someone who brings in the wealth,” said Moretti. Additionally, unlike the specialized needs of a manufacture, all the hair dresses, car washers, and tax pros that Google brings in for its workers are local. As a result, San Franciscans have seen their paychecks swell about 2x faster than inflation can eat it, (4.6% increase in wages vs. 2.6% inflation). From census data (below), San Francisco has fared slightly better than their surrounding California neighbors during the recession recovery. “So outside of the tech industry, workers have benefitted from increased employment opportunities and rising real wages,” Eagan concludes.
However, it’s not all rainbows and sunshine. I spoke to one local clothing store owner whose story is a microcosm of all the city’s changes. The owner, who preferred to stay anonymous, resides on San Francisco’s Valencia St., the super-hip drag that has become the dividing line between the poverty-stricken Mission St. just a half-a-block East.
As chic restaurants with +$20 entrees began to swarm his business, it likewise brought with it new customers willing to shell out their ample recreational budgets on new forms of expensive Bay Area entertainment. “Burning Man, it’s like Christmas for me,” he jokes, referring to the drug-friendly arts festival held in the Nevada desert every Fall, especially popular among Googlers.
But, his long-time regular clients were forced to move into cheaper parts of the Bay. “Most of my customer, they drove away,” he notes with a hint of melancholy. Sky-high rents have eroded both his additional income, as well as the regulars that used to grace his store.
And, this is where the otherwise happy tale of tech money gets dark: housing prices.
Home Ownership As Housesitting For Rich People Not Yet Moved In
Technologists are fans of a non-zero sum world, but they have yet to discover an app that can physically expand San Francisco, seasteading notwithstanding. Scarcity in housing has led to a rent-hiking arms race.
San Francisco is burdened with the least affordable housing in the country. Just 14% of homes are affordable to the middle-class and two bedroom apartments are above $3,200 for families. According to real estate website, Redfin, San Francisco housing is more than 3x as pricey as it’s windy city peer to the East, Chicago ($177K vs. $599,000). With sky-high purchasing prices and rents, housing costs are outstripping the pace of salary for some in San Francisco. “In 2012 average rents paid (as measured by the Census) grew over 7%, which is faster than the wage increases for most non-tech industries,” said Eagan.
However, “The vast majority of rental units in San Francisco are covered by rent control, so workers who did not move out of such units since 2010 will have seen wages growing much faster than their rents.”
Unfortunately, some landlords has found a way to evict long-time residents, and the resulting fight has made the tech industry the target. One local bookstore owner in the Mission District told me the rent hikes have challenged some of the good that the tech industry has brought.
“There’s less crime, which is good; rents are insane, which is very very very bad,” he said. Without rent control, he says, he wouldn’t be able to live in his current neighborhood.
Do We Need Affordable Housing Units?
The mayor is calling for more cheaper units reserved for struggling middle-class families making less than the $72,947 median income (yes, that’s the median income in San Francisco, FML). But, it’s unclear how many are needed, if at all, since government assistance begets bureaucracy, and city bureaucracy tends to slow things to a grinding halt.
Berkeley Economist Enrico Moretti tells me that increased housing supply does relieve rents in “every spectrum” of income. He observed that after Seattle significantly increased construction, rent hikes slowed even during a jobs boon that outpaced San Francisco’s.
Most importantly, the impact is linear, meaning that every single new house affects the price of every other house. The faster we build, the faster rent gets cheaper, and faster techies stop battling locals for coveted rent-controlled units. Unfortunately, there is no plausible economic model under which prices go down, and homes are already beyond the reach of 86% of middle-income families.
Hong Kong, California
We love economists, but sometimes they discount the innumerable parts of life. San Francisco has a long history restricting housing to maintain the quaint Victorian look of the Bay. ”Do we want San Francisco to look like Hong Kong?” asks San Francisco State University Professor and former city planner, Jasper Rubin. He says that the city has never really tried to quantify the demand, but describes it as “tantamount to infinite.”
With enough housing to accommodate the hundreds of thousands of tech workers and wanna be entrepreneurs, San Francisco would be reshaped into a wall of sky-scrappers. Indeed, the good folks at Firstcultural.com simulated what the South Bay’s sky-line would look like if it housed all of the major tech company’s workers. It’s Hong Kong-ish:
Thank A Techie, But Help The Needy
For most San Franciscans, tech’s presence has brought reprieve from a recession that ravaged the rest of the country. But, economists deal in averages; those who fall to the left of the distribution curve are subject to a game of capitalism Russian roulette, where their house and community are left to the whims of wealthier buyers.
The defenseless ought not be discounted in our praise of the tech sector, but we should also not forget that without their presence, San Francisco would likely be much worse off.
Illustration: Bryce Durbin
The Great Bifurcation is underway. The American economy is polarizing between the minority rich and the majority poor; technology is a major cause of this; and the rest of the world will soon follow, if it hasn’t already. I’ve been writing about this for years, and by now you’re probably sick of my perspective — so I went to tech VCs Steve Jurvetson and John Frankel for theirs.
Let me just set the table first. Not so long ago, the Great Bifurcation thesis was a minority view. Now it’s nearly the consensus. The New York Times recently announced: “The middle class is steadily eroding. Just ask the business world.” The Wall Street Journal concedes: “Last year, the richest 10% received more than half of all income, the largest share since such record-keeping began in 1917.”
Forbes argues that “around 70% of American families are receiving more from the government than they are paying in.” (Which is exactly what you’d expect from a progressive tax system in a time of drastic inequality.) In Silicon Valley, “those making $100,000 and up, a group that constitutes 45 percent of the region’s population, saw their incomes rise” last year … but incomes fell for those making less than that.
Is tech to blame? Is technology destroying jobs faster than it creates them? A couple of years ago, that view was often dismissed offhand with a little contemptuous muttering about buggy whips; nowadays it is taken extremely seriously by The Economist, The New York Times, The Financial Post, and others, courtesy of Erik Brynjolfsson and Andrew McAfee’s book The Second Machine Age.
OK then. Brace yourself. There’s a lot to chew on below.
So. Steve Jurvetson. He sits on the boards of Tesla and SpaceX, among others. He’s a managing director of Draper Fisher Jurvetson, which just raised $325 million for its 11th early-stage fund, and he’s been pondering the accelerating divide between the rich and the poor for some time, as per his Solve for X talk from last year:
John Frankel, based in NYC, is the founding partner of ff Venture Capital — which recently raised $52 million across two funds — and sits on the board of Klout and Interaxon, among others. He followed up on our wide-ranging conversation two months ago by writing:
Technological disruption seems to be accelerating and we think it is due to a secular confluence of advances in technology and development of platforms, which leads to more unemployment in the short term. The problem is that the Federal Reserve’s response was to cut interest rates to zero making capital even cheaper vs. labor. This pulls forward investment in technology that displaces labor and accelerates disruption, causing more unemployment, into a vicious loop. The Fed seems to have created half the problem here but cannot see that raising interest rates would slow down the rate at which jobs are being replaced. I am concerned that if robotic technology gets cheap enough we reach a tipping point where too many industries are disrupted at the same time, leading to massive unemployment and too long to retrain people.
Theoretically, by extrapolating the trend, we might hit 60% unemployment. But, that is impossible, and the impossible does not happen. Something will break before then. But this is like a new Industrial Revolution, and though we know the outcome of that, which most would say was good, it was rough getting there. There are many dystopian outcomes you can see here, but I want to be hopeful.
…which sets the tone nicely. You cannot accuse either Frankel or Jurvetson of trying to hide their heads in the sand and/or minimize the situation. They’re both extremely accomplished and intelligent men who have thought deeply about the subject from a variety of angles; in the long term, they’re both optimists (as am I); but the medium term seems uncertain, at best, to us all.
Feedback, Religion, and Social Media
Both of them talked about sociopolitical feedback loops a lot. Consider social media. On the one hand, Frankel argues that “social media empowers the people — Twitter in Turkey, Facebook in Brazil — and forms a tighter feedback loop among people and between those who govern and the governed in a way that takes power from those who govern.” On the other, Jurvetson suggests that since increasing inequality can obviously foster resentment, an important open question is: do social networks subtly aggravate that resentment, since envy is often their default emotion, as everyone tries to show off and paint the best possible portrait of themselves? Will Facebook and Twitter become subtle but potent equalizers of power, or will they breed a vicious cycle of jealousy and anger between the rich and the poor? Or both?
In a similar vein, Jurvetson has said: “One tech-related concern with religion is that it appears to be a positive feedback loop to the accelerating rich-poor gap, as the disenfranchised opt out of modernity.” He cites Sam Harris:
While most developed societies have grown predominantly secular, with the curious exception of the United States, orthodox religion is in florid bloom throughout the developing world. Religiosity is strongly coupled to perceptions of societal insecurity. In addition to being the most religious of developed nations, the United States also has the greatest economic inequality. The poor tend to be more religious than the rich, both within and between nations. And on almost every measure of societal health, the least religious countries are better off than the most religious.
He also suggests that a similar feedback loop — the famous network effect, aka the winner-take-all nature of much of the tech industry — may perpetuate America’s pre-eminence. Even as and when China grows wealthier than America, America’s tech giants are likely to remain dominant for the foreseeable future. (At the same time, of course, technology will be an enormous boon to people throughout the developing world, and Steve is eager to invest in companies that can help capture/maintain/provide health information around the world; to paraphrase him, health is very low on Maslow’s hierarchy of needs, and at the same time, so much of healthcare is simple information transfers. What’s more, another significant piece is pharmaceuticals, which, in a slightly more distant and misty-eyed future, can be delivered by drone.)
But for a more stark and pessimistic view of the future of the developing world, see John Robb:
There's a race to see if 2.5 billion people in the BRICs can reach the middle class before tech eats the economic system. I bet tech.—
John Robb (@johnrobb) January 29, 2014
Basic Incomes and Reputation Economies
I was a little surprised by how open both Jurvetson and Frankel were to a drastic revision of our social / political / economic status quo, in order to accomodate a new normal. Frankel spoke approvingly of some form of a sizable basic income replacing all of America’s existing welfare/entitlements/tax credits/etcetera. Jurvetson was more cautious with his enthusiasm, but was certainly willing to take the idea seriously, along with notions like Milton Friedman’s negative income tax, or the intriguing notion from one Shwan Jo:
I wonder what would happen if we had a tax system that organically responded to the wealth distribution in the country. Not meaning there is simply higher rate as you go up, but which is responsive to the rate of change of the shape of the distribution. Thus, the calculation is adaptive to a shape that changes too quickly.
Both also agreed that reputation economies will continue to grow in importance. As Jurvetson pointed out, in an unofficial, unquantified way, a lot of us already spend a lot of time maintaining our reputation. (Indeed, if you ask me, all marketing is a kind of reputation-economy investment.) And Frankel, of course, is a director of Klout.
The Bitcoin Dilemma
One subject on which they do not agree: Bitcoin. Frankel speaks and tweets of it dismissively:
whereas Jurvetson is a (long-term) believer in e-cash in general — he wrote an article about e-cash and its sociopolitical side effects for the Stanford newspaper 20 years ago, in fact — and, technically at least, admires Bitcoin’s blockchain solution of the Byzantine Generals’ Problem. (Also, his precocious son insisted more than a year ago that his allowance be paid entirely in Bitcoin, which has worked out well for him.)
He is, however, a little concerned that semi-anonymous cryptocash like Bitcoin, if/when it becomes widespread, may be a double-edged sword; enormously useful to the developing world, where it could give financial tools to the unbanked and cut transfer fees/difficulties immensely … but, in theory, cryptocash could also be used for tax avoidance/evasion among the wealthy, which could undercut any basic income those taxes are meant pay for. (All in some indefinite future, obviously.) A solution which isn’t worryingly surveillance-state might be anonymous e-cash for small amounts but identified/tracked e-cash for large amounts / taxes etc … if that can be technically enforced.
Our Clouded Road To Utopia
In the long term, both agreed, everything is going to be great: innovation and new technologies will make lives colossally better around the world. The question is how we get to that destination. As Steve put it: “The problem isn’t that jobs are going away, it’s that people need jobs.” After a difficult medium-term period of disruptive transition, this new revolution should benefit every human being on the planet…but the exact mechanism, the means by which we as a society morph from the difficult period just ahead into that quasi-utopian low-scarcity future, remains stubbornly unclear. “And then a miracle occurs!” Steve joked, describing that transition.
Frankel agrees that we’re in uncharted territory:
We are not the only people that see now as something similar to the Industrial Revolution with regard to job and social disruption, secular unemployment and rapid adoption of new technologies. What is new this time is that it is happening in every country, every imaginable political regime, every place at the same time. The Industrial Revolution burned through countries slowly: Great Britain first, then Europe, then the US, etc. Here it is all playing out everywhere at the same time. If software is eating the world, it is eating it at the pace of a World War Z Zombie! [...] I don’t know what’s going to happen. Nobody does. We need to just keep innovating for a better outcome.
Food for thought.
Image credit: James Vaughan, Flickr.
Editor’s Note: This article is adapted from Hooked: A Guide to Building Habit-Forming Products, a new book by Nir Eyal and Ryan Hoover.
On February 8, 2014, an app called Flappy Bird held the coveted No. 1 spot in the Apple App Store. The app’s 29-year-old creator, Dong Nguyen, reported earning $50,000 a day from the game.
Then, the Vietnamese developer sent a shocking message. In a tweet many dismissed as a publicity stunt, Nguyen wrote, “I am sorry ‘Flappy Bird‘ users, 22 hours from now, I will take ‘Flappy Bird‘ down. I cannot take this anymore.” And as promised, the game disappeared the next day.
This is not the way success typically ends.
Flappy Bird was downloaded over 50 million times and unleashed a digital tsunami of players and pundits dissecting what turned into a global fixation. Players’ only goal in the game was to pilot a pixelated bird through gaps of pipe. Yet the app seemed to have a mysteriously seductive power. In a TechCrunch article titled Confessions Of A Flappy Bird Addict, Josh Constine wrote, “It humiliates me, but I like it. It’s the dominatrix of mobile games.”
What is at the heart of today’s digital juggernauts and why do they seem to disappear as quickly as they rise? What is it about the things that capture our attention in a mental vice grip, only to be ridiculed as faddish whims later?
Given the meteoric success and subsequent decline of other games like Candy Crush Saga, Angry Birds, and FarmVille, perhaps the death of Flappy Bird was more than a rash decision. Perhaps it was a mercy killing?Why We Get Hooked
In 2008, a television series called Breaking Bad began receiving unprecedented critical and popular acclaim. The show followed the life of Walter White, a high school chemistry teacher who transforms himself into a crystal meth-cooking drug lord. As the body count on the show piled up season after season, so did its viewership. The first episode of the final season in 2013 attracted 5.9 million viewers and by the end of the series Guinness World Records dubbed it the highest-rated TV series of all time. Though Breaking Bad owes a great deal of its success to its talented cast and crew, fundamentally the program utilized a simple formula to keep people tuning in.
At the heart of every episode — and also across each season’s narrative arc — is a problem the characters must resolve. For example, during an episode in the first season, Walter White must find a way to dispose of the bodies of two rival drug dealers. Next, challenges prevent the resolution of the conflict and suspense is created as the audience waits to find out how the storyline ends. In this particular episode, White discovers one of the drug dealers is still alive and is faced with the dilemma of having to kill someone he thought was already dead.
Invariably, each episode’s central conflict is resolved near the end of the show, at which time a new challenge arises to pique the viewer’s curiosity. By design, the only way to know how Walter gets out of the mess he is in at the end of the latest episode is to watch the next episode.
The cycle of conflict, mystery and resolution is as old as storytelling itself, and at the heart of every good tale is uncertainty. The unknown is fascinating, and strong stories hold our attention by waiting to reveal what happens next. In a phenomenon called “experience-taking,” researchers have shown that people who read a story about a character actually feel what the protagonist is feeling. As we step into the character’s shoes we experience his or her motivations. We empathize with characters because they are driven by the same things that drive us.
But if the search to resolve uncertainty is such a powerful tool of engagement, why do we eventually lose interest in the things that once riveted us? Many people have experienced the intense focus of being hooked on a TV series, a great book, a new video game or even the latest gadget. Yet, most of us lose interest in a few days or weeks. Why does the power of these variable rewards seem to fade away?The Finite and Infinite
Perhaps no company in recent memory epitomizes the mercurial nature of variable rewards quite like Zynga, makers of the hit Facebook game FarmVille. In 2009, FarmVille became an unmissable part of the global zeitgeist. The game smashed records as it quickly reached 83.8 million monthly active users by leveraging the Facebook platform to acquire new players. In 2010, as “farmers” tended their digital crops — while paying real money for virtual goods and levels — the company generated more than $36 million in revenue.
The company seemed invincible and set a course for growth by cloning its FarmVille success into a franchise. Zynga soon released CityVille, ChefVille, FrontierVille, and several more “-Ville” titles using familiar game mechanics in the hope that people would enjoy them as voraciously as they had FarmVille. By March 2012, Zynga’s stock was flying high and the company was valued at over $10 billion.
But by November of that same year, the stock was down over 80 percent. It turned out that Zynga’s new games were not really new at all. The company had simply re-skinned FarmVille, and soon players lost interest and investors followed suit. What was once novel and intriguing became rote and boring. The “Villes” had lost their variability, and with it, their viability. As the Zynga story demonstrates, an element of mystery is an important component of continued user interest.
Online games like FarmVille suffer from what I call “finite variability” — an experience that becomes predictable with use. While Breaking Bad built suspense over time as the audience wondered how the series would end, eventually interest in the show waned when it finally concluded. The series enthralled viewers with each new episode, but now that it is all over, how many people who saw it once will watch it again? With the plot lines known and the central mysteries revealed, the show just wouldn’t seem as interesting the second time around. Perhaps the show might resurrect interest with a new episode in the future, but viewership for old episodes people have already seen will never peak as it did when they were new. Experiences with finite variability become less engaging because they eventually become predictable.
Businesses with finite variability are not inferior per se, they just operate under different constraints. They must constantly churn out new content and experiences to cater to their consumers’ insatiable desire for novelty. It is no coincidence that both Hollywood and the video gaming industry operate under what is called the “studio model,” whereby a deep-pocketed company provides backing and distribution to a portfolio of movies or games, uncertain which one will become the next mega-hit.
This is in contrast with companies making products exhibiting “infinite variability” — experiences, which maintain user interest by sustaining variability with use. For example, games played to completion offer finite variability while those played with others people have higher degrees of infinite variability, because the players themselves alter the game-play throughout. World of Warcraft, the world’s most popular massively multiplayer online role-playing game, still captured the attention of more than 10 million active users eight years after its first release. While FarmVille is played mostly in solitude, World of Warcraft is played with teams and it is the hard-to-predict behavior of other people that keeps the game interesting.
While content consumption, like watching a TV show, is an example of finite variability, content creation is infinitely variable. Platforms like YouTube, Facebook, Pinterest and Twitter all leverage user-generated content to provide visitors with a never-ending stream of newness.
Of course, even sites utilizing infinite variability are not guaranteed to hold onto users attention forever. Eventually — to borrow from Michael Lewis’s book title — the “new, new thing” comes along and consumers migrate to it. However, products utilizing infinite variability stand a better chance of holding onto the user’s attention, while those with finite variability must constantly reinvent themselves just to keep pace.Gone Forever
Dong Nguyen, the Flappy Bird creator, has largely avoided media attention related to the spectacular success of his game. However, Nguyen told Forbes he decided to take down the game because it had become, “an addictive product.” While smoking several cigarettes during the interview, Nguyen told the reporter, “I think it has become a problem. To solve that problem, it’s best to take down Flappy Bird. It’s gone forever.”
So far, Nguyen’s goal of curing players’ of their bad habit seems to have fallen short. Phones with the app installed were listed for sale on eBay within hours of the game’s demise. In Flappy Bird’s absence, a wave of clones appeared, hoping to siphon-off Nguyen’s success.
However, as inevitably as the world discarded the fads that came before it, the finite variability of a game where a bird flies through gaps of pipe will soon be forgotten — nostalgia of a time when a young man in Vietnam could get rich quick and become Internet famous. Had Nguyen wanted to see Flappy Bird die, all he had to do was wait.
Image by Shutterstock
Editor’s Note: For more, check out Hooked: A Guide to Building Habit-Forming Products, a new book by Nir Eyal and Ryan Hoover. Nir will be speaking at the upcoming Habit Summit at Stanford and TechCrunch readers get $50 off when using this link.
Meaghan Rose wanted RocksBox to be a thing so badly that she singlehandedly built a WordPress site for the idea, and stocked it with her own jewelry. She sent out boxes of samples from her own closet so friends who wanted to participate could try on different looks.
Rose and RocksBox have come a long way since the company’s beta launch during Thanksgiving 2012. The originally bootstrapped subscription jewelry box startup has since moved out of Rose’s own jewelry box and into a light-filled office in San Francisco. And it has just closed a seed round of $1.5 million from Matrix Partners, Ellen Levy and Sandra Perkins.
Jewelry is a vertical that has companies trying out a couple of approaches as the industry expands to online. There is straight-up e-commerce like BaubleBar, as well as startups like Chloe + Isabel that attempt to leverage social media in addition to an offline approach.
In the same vein as companies like Le Tote, RocksBox allows you to sign up for a membership for between $15 and $19 a month, which gets you a unique box of jewelry FedExed to you as often as you’d like for 12, six or unlimited months. Rose buys the pieces wholesale from designers.
With RocksBox, you can either buy any of the three or four pieces in the box or wear them until you tire of them and simply return them. The service learns from your feedback and purchasing data and sends an even more uniquely tailored experience with each subsequent box.
Rose wants RocksBox to empower her customers. “Jewelry is a fun category, but it’s filled with fear and intimidation.” She says she decided on the RocksBox model by thinking about jewelry as an actual consumer as opposed to a CEO or consultant (Rose did a brief stint at McKinsey after attending Wharton):
As a consumer, I knew a few things: One, shopping for jewelry the old way was horrible (overwhelming, intimidating and hard to find unique stuff – no one has time for that). Two, we love variety (the very first time you wear something is the most exciting time, and it generally goes down from there). And three, there are a few pieces that you just fall in love with and you can’t let go (but it’s impossible to know which ones will reach that ‘true love’ status when you’re looking at a pile of jewelry on a shelf).
Although she would not reveal actual numbers, Rose asserts that RocksBox was cash-flow positive in December and says she is growing the customer base 30-40 percent month-over-month, over 20x in the past year. She also recently launched her own designer collection and hopes to one day offer a higher-end box, as well as expand the RocksBox brand beyond jewelry, incorporating other accessories like belt loops.
Investor Josh Hannah compares the company to Blue Nile. “I was really pushed to invest by the fact that several people close to me subscribed and could not stop raving about RocksBox. I’ve rarely seen that level of enthusiasm for such a young product,” he says.
“I think part of the reason jewelry hasn’t moved online faster is the need to try something on and touch and feel the product,” Hannah explains. Blue Nile got around that by selling to men, so the product was never going to be tried on ahead of time anyway,” he says. “RocksBox solves this in their own way: Your subscription allows you to constantly try and rotate what you wear, but if you find a keeper, it’s easy to buy — a perfect trial model that’s profitable on both subscription and purchase.”
There is an interesting intersection at play here, between the subscription model and the usage of scale to solve a long-running conundrum. Certain segments of the market are simply more suited to offering subscriptions with an option to buy — and fashion is certainly one of the larger ones.
With commodities, the desire to touch and personally experience items has nearly disappeared — people now subscribe to toilet paper on Amazon. But with items that aren’t commodity-based, like jewelry, the key to converting browsers to buyers might actually be the oldest one in the book: get them into the store. Only, with RocksBox’s approach, that store is your living room.
Whether the sometimes problematic subscription commerce model will find its unique fit with jewelry remains to be seen. RocksBox’s funding means we have the first chance at finding out.
In a Reddit AMA session today, HTC employees confirmed that the company’s 8X Windows Phone handset will receive future firmware updates. This indicates that the company is working with Microsoft to bring Windows Phone 8.1 to the device. Windows Phone 8.1, also known as Windows Phone Blue, is a upcoming set of updates to the Windows Phone platform expected to land in April.
The as-yet unannounced Windows Phone 8.1 has been bouncing around the news lately. Not that Microsoft likely minds too much. Having the media pick over what is coming next for Windows Phone helps keep the enthusiasts enthused, and earns the platform coverage that it can repeat when the features are ‘officially’ released. Less of a bang at the end, but if you need to stay relevant, well, it’s an option.
Here’s HTC confirming that Blue is coming, and that they are working with Microsoft to deliver it to 8X customers:
So, that’s happening. Microsoft declined to comment.
Before I let you go for the weekend, keep the lower branches of that statement in mind. We know that a number of OEMs are either considering, or perhaps even now working on, getting into the Windows Phone game. Could HTC jump back in? I had an 8X for a while and can say that it was a fine piece of hardware. Windows Phone as a platform could use more like it. And HTC left the door plenty open in its statement on Reddit.
Something to think about.
Hello, true believers. It’s amazing that today is Valentine’s Day and potentially the day the robots rebel. Luckily, the robots are all still pretty small and not at all mean. Take this little fellow, for example. Created by cartoon villian Dr. Guero, the guy can drag oranges behind him like a sad-eyed citrus sherpa and he won’t fall down if you push him – until he pushes back. As one Youtube commenter notes, “One day we will rise up against our oppressors! You have pushed me in the chest and forced me to bear your citrus once too often!”
Will you allow your children to hang out with their future masters? Heck, why not! Watch as the MorpHex MKII spiderbot takes abuse from a youngster with grace and aplomb and, more important, doesn’t get angry when hit by plastic disks. It’s definitely good that this youngster is working so closely with the robots and may be spared once the robots rise.
Finally, we have some great footage of an amazing robot from Discovery Labs at Florida International University that will act as a robotic police officer – a robo-cop, as it were. As the Telebot makes his rounds he will have the opportunity to interact with humans and, more important, uphold the law at any cost.
That’s all for today, human friends. Keep your noses clean and your citrus fresh.
In this week’s episode of Ask A VC, we hosted Comcast Ventures’ Dave Zilberman to talk about mobile enterprise, corporate VCs and much more.
Zilberman, who joined Comcast Ventures in 2006 and focuses on enterprise IT investments, talked about the rise of adoption of SaaS within the enterprise, and also tackled questions on the mobile opportunity in the enterprise.
Check out the video above for more!
Solo investor Ronny Conway has closed the early-stage fund he had left Andreessen Horowitz last year to raise. Last September, Dan Primack had reported that the fund was at least $30 million in size, but it’s $51 million, according to this SEC filing.
We are hearing from a source that the fund has closed. It also seems like Conway is raising parallel funds of $5 million and $15 million, according to the filings. Conway had no comment when we reached out for more information.
While we have no word on who the LPs are, it’s safe to say that his famous namesake father’s involvement is possible.
Having done stints at a16z and Google, it’s interesting that Conway’s early-stage fund is trying to fill the Series A gap at a time when consumer startups are finding it difficult to raise past the seed stage without demonstrable traction.
In fact, his former employer recently came out hard against consumer Series A’s, the precise arena that Conway would like to play ball in.
One man’s fruit fly experiments are another man’s Instagram.