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- What Sports Can Teach You About Creating Awesome Products
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| First-Time Startup Entrepreneurs: Stop Fucking Around Posted: 05 Aug 2012 08:00 AM PDT  Editor's note: Paul Stamatiou is Co-founder of Picplum, a Y Combinator-backed photo printing service, where he obsesses over both design and development. He also co-founded Notifo (YC W10) and Skribit. Follow him on his blog, PaulStamatiou.com, and on Twitter: @Stammy. Reminisce with me for a bit. Do you remember the first time you got an Internet connection? Before your computer was always connected and when going online was a thing you had to plan. The joys of seeing new browsers like Phoenix emerge. Your excitement when you first experienced the Web with your new high-speed connection. It was a time when sites rarely had any JavaScript and DHTML was the buzzword of the year. Now it’s hard to believe that Chrome is just a few years old. When I first visited California for my Yahoo! internship (news of which immediately hit Valleywag, remember that site?) I knew I had to move out here eventually. I came back every year visiting friends and checking out startups. Every time I drive into San Francisco and see the skyline, it’s a strong reminder that I’m fortunate to be in a time and place where I have wanted to be for so long, with such a vibrant and strong tech community. And that Ibetter not fuck it up wasting time and being unproductive. I’m not here to talk about your startup idea, offer Backbone.js tips, discuss how to find your first customers or offer tips to pimp out your AngelList profile. I just want to say a few words on how to work. This is a post to new entrepreneurs about getting shit done. This is all started with a tweet of mine. I was annoyed some friends that just began working on a startup were slacking off. Over 150 retweets later, I decided to elaborate on my thoughts here.
We are in an amazing time right now — perhaps the perfect time to build companies. And it pains me to see first-time entrepreneurs flush away this huge opportunity getting caught in the hype of how cool it is to do a startup, going to endless meetups and spending entirely too much time on Maserati problems when they’re not busy cargo cult coding. Startups are a grind. It may end with having to get a job, or it may end with a big smile and a Section 280G, but either way you’ll have learned a ton. Your workdays are sacredThink about the opportunity cost here. You could be off making six figures but you decided to swing for the fences with your startup. That takes guts. So why would you slack off and waste time? This is not a 9-5 job. You’re only hurting yourself if you don’t suck it up and work your ass off. So please avoid all those endless meetups you go to for the sake of meeting up. Like Michael Arrington says, “use all that free time to start spending time with the serious people, doing serious things.” Someone wants to meet during the week? Unless its actually business-related, turn it down or move it to the weekend. If they really want to meet, they will sacrifice some of their weekend too. I will make one exception though. I’m a big believer in paying it forward. If someone needs genuine help I’m always down to lend a hand. It’s my way of returning the favor that people like George Zachary, Dan Martell, Hiten Shah and Noah Kagan that have spent countless hours helping entrepreneurs like me for as long as I can remember. Get ready for ups and downsYou will have days that suck. Getting accustomed to this will be a challenge for any new entrepreneur. I once tracked my mood everyday for a few months while I was working on my last startup (this was when we were fundraising). Find Your ThingThis is one of the things Marissa Mayer has mentioned for how to prevent burnout and I have found it to ring exceptionally true. What do you need to do for yourself every week to keep your sanity? For me that’s running a few hours per week and seeing the occasional electronic dance music show with my cofounder. These things leave me feeling more energized and happier, something you can’t often say about attending lots of tech meetups and conferences. What’s your plan?Picplum is my third startup and if there’s one main difference between my last startups, it’s definitely our planning. I’ll be the first to say that I have a bad habit of always wanting to build first. New idea? Start with javascript. Wrong! Fortunately I have a great cofounder that keeps me in check and reminds me to spec things out first. Unless you are blessed with building a product that is solving your own problem and you are your target user, chances are you need to take a step back to throw away all of your assumptions. Pick some sort of task/project management tool and use it. Whether it’s Trello, Hackpad, Asana, Flow, Sprintly or what have you — just pick one. Keep track of every idea, feature request or bug but rigorously prioritize. Do not allow anyone else to use their own system, because they’ll never check the company Asana and always be one step behind. Not sure if it’s worth your time to fix something right now? Hiten Shah of KISSmetrics once told me something a few years ago that stuck:
One thing I learned about myself is that if we set an amount of time a new feature or update should take, I’m more likely to think through everything involved and spec out all the steps. This applies for at least anything that touches the UI. For example, we recently designed and built a new share page for the new Picplum. When I first started working on it, I was in the mindset that this was going to be a simple afternoon project that I would just hook up with current layouts and maybe extending one Backbone view. Easy. While that could have been the route we took, we decided to take a step back and define the goal of this page. What was the first thing we wanted the user to do? Did it need to use the same layout as other pages? What followed was a productive 30 minute product chat with some sketches that resulted in a much better idea of what we wanted the user to experience. I mocked up 5 variations in Photoshop, had quick back & forths on the designs then built the one we decided on. By mentally setting the length of this task from a hasty “I need to push this tonight” to a more effective “lets plan this out and take more time if necessary” the end result was much more robust. A better product and better code that you won’t have to end up rewriting twice later on. The opposite of this is spending days or weeks “planning” a single feature and feeling like that is actual work. Thinking about how to do something won’t actually get it built. I’ve seen one too many startups that are way too happy about all the notes they’ve scribbled down over the last week about what they want to do. Just go do them, and surprise me when you’re making real progress. Get more feedbackI used to do this all the time: I’d spend hours or days building what I thought was the perfect feature only to realize my cofounder and I had different thoughts on how it should all piece together. Get more feedback, more often. But how do you get quick feedback without sounding condescending and nagging for status updates from your cofounders? Just make it a habit. Anytime one of us asks “What are you working on?” or “How is X going?” it’s not a translation for “WTF is he doing” but rather just some friendly accountability and an offer to help. Make sure you and your cofounders keep each other in check with this simple habit. The best part about these tiny status updates here and there? Less meetings. Keep it light and iterative. For me this is often sharing a screenshot in Campfire with Akshay or flipping my monitor around to talk through something. One thing that stuck with me is Jeffrey Veen’s talk Designing for Disaster. He talked about how to conduct product reviews and keep them constructive:
Be DecisiveThere’s nothing worse than trying to spec out that new feature or product and ending up with more questions. “Yeah we could do that” is not an acceptable answer. Entrepreneurs need to be able to make quick decisions and move forward with them. Delaying will not make the decision any easier (unless of course you’re waiting a few days for more data on that A/B test or more visitor metrics for your data-driven decision). Make a decision, put it in your Asana, assign people to it and get back to work. When you get stuckIf you can’t figure something out in 20 minutes, move on if it’s not blocking or ask your cofounders. My cofounder Akshay is big on this “20 minute rule” of his. If you’re spending 2 hours trying to properly bind events on a collection or figure out why your RequireJS optimized build isn’t working on production, you are both wasting time and not putting your resources to good use. By resources I mean your smart cofounders. A pair of fresh eyes always helps. Respect the ZoneFind out how you work best. It may be a bit eccentric but when I really want to get work done I do things like hide the clock in OS X, close anything that can make sound (except Spotify of course), close all unrelated browser tabs, and make sure nothing else is cluttering my mind, like any small nagging tasks that I should probably finish first. Perhaps you need to perfect your coding cave. Make sure you know what you and your cofounders need to be productive. If that means designating a specific “wired in” work period every day when there are no distractions, then so be it. Good luck!
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| What Sports Can Teach You About Creating Awesome Products Posted: 05 Aug 2012 06:00 AM PDT  Editor's Note: This guest post is co-authored by Nir Eyal, Andrew Martin, and David Ngo. Nir is a regular contributor to TechCrunch and blogs at NirAndFar.com. Andrew and David are seniors at Stanford University working in conjunction with the Stanford Persuasive Technology Lab and Trinity Ventures. This week, fans packed stadiums in London wearing their nation's colors like rebels ready for battle in Mel Gibson's army. They screamed with excitement and anguished in defeat. Many paid thousands of dollars to travel around the globe to be there. Among those who did not attend, 90% of people with access to a television tuned-in during past Olympics. In 2008, that was 2 out of every 3 people on the planet. What the hell is going on here? How do sports engage, delight, and motivate people to put their lives on hold and become totally engrossed in watching other people play games? If sports can motivate people to go to great lengths, can businesses learn to instill the same loyalty and passion in their customers? In fact, the psychology that makes fans do crazy things in the name of their team can be harnessed to turn people into avid users. Innovative companies are minting habitual customers by understanding the mechanics of human behavior. Here are a few examples of the psychology of sports and the companies who have learned to exploit these same principles: "This Might Be the Year"For a stunning example of customer loyalty, look no further than the fans of the heartbreaking Chicago Cubs. The team suffers from "the longest drought in North American sports," 104 years without a World Series win. Yet, despite the century of defeat, Forbes magazine rated the team as having the 4th most loyal fans in baseball. Why do Cubs fans keep coming back? What keeps them engaged year after losing year? Though sports columnists and diehards provide detailed bullet-points intellectualizing why "this is our year", the answer lies in two cognitive hacks, which at times produce seemingly irrational behavior – hope and variable rewards. From then-candidate Barak Obama's iconic campaign poster to Pepsi's recent campaign ad, it's clear that hope sells. According to BJ Fogg of Stanford University's Persuasive Technology Lab, the pursuit of hope is a key motivator of human behavior. While every sports fan appreciates the power of hope, few comprehend the zombie-like power variable rewards can have on the brain. A classic behavioral mechanic deployed by slot machines and video games, random reinforcement kicks the brain's dopamine system into high-gear. We're mesmerized by the prospect of another chance to find a reward, a win, a prize – an endless search for the satisfaction that is never fully realized. Sean Markey is a 29 year-old special education teacher in Salt Lake City. He is also an addict. Markey is hooked to Quora, a social question and answer app, which he says he uses up to a dozen times a day. Scrolling through his Quora stream provides Markey with a steady supply of stimulation. Though Markey understands how addictive the service is, he's powerless against Quora's variable rewards. Like a Cubs fan holding on to the elusive promise of a championship victory for just one more year, Sean can't help but check his Quora feed searching for that enticing answer just another swipe away. "I never know what type of questions I'll get," Markey said. "Will there be a question that could drastically change my worldview? I don't know, but if I don't check, I'll never know. So I find myself going back several times a day." The More You Pay, The Better the GameJay Acunzo is also hooked, not to Quora but to his favorite sports team, the New York Knicks. Come what may, the 26 year-old says he will remain a fan. Last year, he spent several hundred dollars in tickets along with hundreds more for gear and related paraphernalia. But for Xandra Kredlow, Acunzo’s girlfriend of over 3 years, the Knicks are just a money-sucking distraction. Xandra couldn’t care less about assists or rebounds. She’ll attend a game from time to time, but if she is like the women in a recent study, she does so to spend time with a loved one, not follow the action on the court. But what explains how differently people feel about sports? Two more psychological phenomenon help explain why some people engross themselves in fandom while others do not. The first aspect of this cognitive cocktail is known as an escalation of commitment bias. Research reveals that the more effort people expend in doing a behavior or acquiring a set of beliefs, the more likely they are to continue doing the behavior or holding on to their point of view. In sports, the effort comes early in life. Children quickly go from playing backyard games to wanting to be like their favorite sports heroes. Every practice is a bit of work, increasing the love of the game. While very few children grow up to play sports professionally, they continue to associate with the joy they felt playing the games of their youth. As fans age, they begin to invest in the game not with physical effort, but with their leisure time and disposable income. And there is reason to believe that the more fans spend, the more they love their team. Cognitive Dissonance Theory may provide an answer to how fans’ enthusiasm rises with the degree of effort expended. If fans perceive that they are paying more to watch the team than the enjoyment received, a mental conflict ensues. The only way to resolve this discrepancy is to love the team enough to justify the costs. From Doing to BeingEscalation of commitment explains part of the reason why we get hooked to sports, but there is another attribute, which helps mint lifelong loyalists. Sports shape our self-identity. Research suggests that the way we wish to perceive ourselves has a profound impact on how we behave. For example, people who took a survey on “being a voter” were much more likely to actually vote than people who took the same survey about “voting.” The simple switch in the survey, from a verb defining an action (voting), to a noun defining the self, (voter), dramatically increased turnout. When people change the way they define themselves, they begin to behave in ways consistent with that belief. A real fan dresses in team colors. A real fan watches every game. A real fan is loyal to the end. Of course, people perceive what it means to be a fan differently, which explains why everyone doesn’t show up to the office wearing team jerseys and face paint. However, the way we define who we are has a measurable impact on how we act, from the sports we watch to the products and services we use. Several companies utilize the phenomenon of escalations of commitment and self-image shaping to drive customer engagement. Apple brilliantly defined what it means to be a fan of it’s products, first with their “Think Different” campaign and later within the famous “Get a Mac” commercials. Apple coupled itself with being young and innovative, while defining its competition, the PC, as the opposite. By manifesting its products as real people — "I'm a Mac. I'm a PC." — it made the metaphor crystal clear. Apple also uses escalations of commitment, starting with the entry level iPod, in an attempt to eventually take over every possible screen, from phone to TV. Another company, StackExchange, provides a surprising example of using escalations of commitment and shaping of self-image to create super users. The site, which started as a forum for answering technical questions, is almost completely run by its members and now hosts vibrant forums on hundreds of topics. On average, visitors post 5,600 questions to the site every day. How does StackExchange bring order to the flood of questions and ensure people get answers quickly? Simple, it makes its users do the work. Each question asked, answered, and promoted, further commits the user to the system. A task as easy as a one-click up-vote, signifying satisfaction with an answer, can evolve into complex and time-consuming jobs. At other companies, this kind of work would be completed by paid staff. But at StackExchange, top users spend several hours per day managing content and moderating the community, all without receiving a dime. According to Jeff Atwood, co-founder of StackExchange, “Our most active members see themselves as more than just users. They view themselves as owners.” Atwood continues, “When users view themselves as responsible for the quality of the site, their usage explodes.” It is here that StackExchange begins to change users' self-image. These users turned owners, see themselves as having a special responsibility to the site just as sports fans are convinced their loyalty matters to the team. Their participation becomes part of who they are, not just what they do. Sports are WeirdWherever we observe unusual human behavior, it's often useful to ask "why?" Spectator sports are such a common facet of our lives that we sometime fail to appreciate their ability to make us do highly unusual things — behaviors rarely observed outside the context of organized competition. Let's face it, the ritual of dressing in special attire, wearing colors signifying a tribal-like affiliation, and paying top dollar for the right to watch people we've never met play a game for our amusement, is quite frankly, weird. But the reasons why we behave the way we do under these peculiar circumstances provide practical lessons for building better products, and perhaps better lives. Sports are fundamentally human and more importantly, they are fun. Porting some of the same psychological tenets of sports into business is more than just a ploy to make products more addictive, it's a way to increase customer satisfaction. Sports make people happy. Fans come to watch the games to feel good and even when their teams lose, they leave happy enough to return again for the next game, and the next, and just one more. Thanks to Max Ogles for reading early versions of this essay.
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| How To Make Sure Your Crowdfunding Dreams Don’t Turn Into An Investor Relations Nightmare Posted: 05 Aug 2012 02:00 AM PDT  Editor’s note: Jason Best and Sherwood Neiss spearheaded the efforts to legalize crowdfunding and helped author the JOBS Act. They founded Crowdfund Capital Advisors and are currently co-authoring Crowdfund Investing for Dummies. The concept of crowdfunding to launch and grow your business may seem like a dream come true—reduced cost of capital, access to new pools of investors, the community opening their arms and wallets— all giving your business a shot to make it big. While crowdfunding (both donation and equity based) offers amazing opportunities, it also brings fiduciary responsibilities, commitments of time, reporting requirements and the potential to let down the people who mean most to you in the world if the unforeseen happens and failure occurs. As the authors of the Startup Exemption Framework that made debt- and equity- based crowdfund investing legal, we take the responsibility of educating entrepreneurs and investors extremely seriously. Anyone that has been in the private equity or entrepreneurial community long enough knows how hard it is to raise capital, whether that is from your professional investors or from friends and family. We want to ensure that people crowdfund responsibly—which is why we will be contributing updates, data and advice to TechCrunch readers in the coming months.
Whether you are launching a donation-based campaign on Kickstarter for a new gismo or are preparing your online and offline networks for your new software company's equity campaign launch—DON'T BE 'THAT GUY.' We have all heard him –the one that talks endlessly about his company and dreams and takes it personally if people don't kick in to meet his Kickstarter goal. Business opportunities come and go, and if you push people too hard for dollars, you may see more people go in your life. While you have to get your networks ready, do so tactfully and legally. If people are not interested don't keep pushing, as you never know their reasons for not kicking in. A better approach is to engage with your network before asking for money—see if they would be willing to evaluate your business plan or critic your pitch idea. Engage them, have them mentor you—people want to feel like they are helping and giving back. Also by asking people for their advice and help before asking them for money, you are also ensuring that you will overcome their personal objections when it does come time to ask for funding.
Above all we advise entrepreneurs to never allow people to invest more than they would be comfortable losing. While no one ever wants to believe their idea could fail the reality is that, according to the SBA, 50 % of business fail within the first five years. While we believe crowdfunding will reduce those rates—as the SBA attributes 65% of all failures to a lack of capital. If failure does occur, you are going to need your friends and family to support you. While there are provisions that limit the amount of funds an unaccredited investor with a net worth under $100,000 can invest to $2,000 per year (or 5% of their annual income or net worth, whichever is greater), do you really want your uncle putting himself in a bind to fund your business?
Could you imagine adding an extra 10 hours a week of email management to your schedule? For crowdfunded companies that do not plan and execute properly, this can become their new reality. As novice investors can often require additional calls and emails, investor relations can quickly become distracting and overwhelming. Before you know it, your business could suffer… leading to even more calls and emails. When you use crowdfunding to fund your business, you need to plan for ongoing communication with your donors and investors and set their expectations early and often about how you will communicate with them. Think about how you can create scalable ways to communicate. Is it a quick email update? Does your crowdfunding platform have online IR services that you can use? What will your cadence of communication be? Are you planning on using a publicity firm to help you manage the communication? If so, you need them to provide a plan before you launch your campaign. Create a private group using Google, Facebook and/or LinkedIn groups to communicate with members. Set expectations up front on when updates will be given and never miss a deadline. The main point is that you need to be prepared to give regular updates—continuing to set and meet expectations regarding communication.
Communicating openly is critical. While publicizing achievements, new product developments, media coverage and good news is a must. You will also want to share issues or problems that may negatively affect the company with your investors. It is always better to be the one breaking the bad news. Most investors understand that hiccups occur, deadlines get missed, and circumstances can require a pivot to new opportunities—the key is to openly communicate and maintain communication during the good times and bad.
While the JOBS Act laid out general guidelines, the specific regulations crowdfunding companies will have to follow are still being written. All the same fundamentals for starting a business remain unchanged for crowdfunders. Start now to prepare to ensure that you will be ready in 2013, when equity and debt based crowdfunding becomes legal. Many of these steps will need to be completed now in order to be compliant and fully prepared. There are a great deal of resources online that can help, sites like the Crowdfund Regulatory Intermediary Advocates(CFIRA) and the Crowdfunding Professional Association (CfPA), offer updates and training as well as conferences that will prepare companies to succeed in crowdfunding and stay within the confines of the laws. As an entrepreneur, you certainly have a clear vision for your business, but this vision needs to be communicated to others. Investors need to be confident in your ability to create measurable value, especially if you do not have an existing track record of successful startups already under your belt. Show them why your business is worth funding and be ready to listen, when they give you advice. By spending a bit of time in preparation and communicating clearly with your investors in scalable ways—you can harness the power of the crowd and not be overwhelmed by it.
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| Zyngapocalypse Now (And What Comes Next?) Posted: 04 Aug 2012 09:55 PM PDT  Editor’s note: Tadhg Kelly is a game designer with 20 years experience. He is the creator of leading game design blog What Games Are, and consults for many companies on design and development. You can follow him on Twitter here. Significant losses, declining ARPUs, failing mobile acquisitions and shareholder selloffs. A stock price down to $3.01. A product catalog repeating previous mistakes. Media coverage ranging from the mystified to “I told you so”. A vague promise to get into gambling. Last week was miserable for Zynga and, as the bellwether of social games, was not good news for the whole sector. As Zynga goes, so eventually go Wooga, EA Playfish and countless others. Both inside and outside the walls of Facebook, the story of social games has become one of dead geese and golden eggs, flatlined growth, formulaic games and shady practises. Many warned that the sector was slowing down, but sometimes giants need to fall. It needs to get bad enough before people start to really consider what’s next. So what comes next? Hollow MenTwo and a half years ago I wrote an article for Gamasutra that kickstarted my career in consulting and caused a huge stir inside the walls of various social game companies. Its title was “Zynga and the End of the Beginning“. I essentially said that the main problem in social games was that the product was almost identical across all providers, and that social game makers had trapped themselves into thinking that it had to be so. I said that this had led them to treat the market as akin to fast food, as a necessary commodity rather than a quality relationship, and that this meant they were heavily dependent on new users and their sense of novelty. New users would eventually decline and, if the products didn’t get start to become genuinely sexy, then they would eventually stall. In fact my theory was that social games could slide into the same death spiral that Ataridid in 1983. In this model, rather than rejecting one game in favour of another, the market declares a plague on all their houses and stops buying into the platform as a whole. The Atari example is the most dramatic, but the same thing has also happened in other markets such as interactive TV. It will also probably happen to handheld gaming soon. Was I right? While some of my numbers proved too conservative, the essential points remain true. I thought Zynga would miss the opportunity to spend incoming investment on building better products and instead inflate the kind of product and business model that they already had. This is precisely what happened, with the company expanding headcount massively through acquisitions and new studios, but pretty much repeating the same type of game over and over. Poker remains the steadiest Zynga game by far because it has a game dynamic that works. Almost all its other games are reliant on content, and pacing. While some social game designers continue to insist that this is a good thing, its the users who ultimately decide if it is. So without constant and heavy promotion, social games tend to fade away pretty quickly. For all of the development effort that gets put in to making new games, makers like Zynga seem to mostly just push existing users around (which leads to wondering whether they really need to make new games at all), stealing from Peter to pay Paul. And occasionally trying to buy a bulk of news users to add to the mix (which is what the Draw Something purchase was all about). Long story short, the fundamental problem remains that the business model of social games is hollow because the value it provides is poor. Different providers compete against each other to look good (not unlike most other game sectors), but equivalent value is not the same thing as actual value. That’s the same trap that Atari fell into. Thinking and acting equivalently leads to a case of “When Plan A doesn’t work, go to Plan A”, and Zynga is not alone in this. EA Playfish’s original games are all dying off, to be replaced by EA branded games which struggle to stay popular. Playdom is rarely heard of any more, and its once-vaunted Social City game has dropped to a mere 40k MAU. Digital Chocolate is in fast retreat, and Wooga is merely holding steady. Even while Facebook is nearing on that elusive billionth user, social games as a share of overall network usage is way down and Zynga only accounts for 15% of Facebook revenue. Of course there are extenuating circumstances, from the lack of access to viral channels to platform considerations, available real estate and so on. However those are always the reasons that the tactically-minded reach for. Yes, access and channels and funnels and all that stuff matter, but what matters more is strategy. With the right strategy they can all be overcome and success can be found, but with only a middling strategy based on formulaic product it’s tough to make a difference. As with the supermarket shelf, when your product looks the same as everyone else’s and tells the same marketing story, you are just another jar of pickles. The obsession with tactics is directly related to the obsession with metrics, and this leads to a culture which devalues original thinking. Social games have the exact same problem as network television in that respect, in that there are far too many quants running the show, demanding numeric proof for decisions. Quants understand little to nothing of why players play games, and reduce everything to the kind of extrinsically motivated decisions that Daniel Pink described in Drive, and all of the problems that go with them. Day to day numbers govern everything, so the only permissible decisions are the ones which hurt or help those numbers on any given day. Timidity rules. And timidity is precisely the problem. Social Games, Generation TwoZynga’s whole model (and that of its competitors) is pretty similar to operating a gaming portal. The model’s main differences are the game’s ability to insert itself into players’ social streams, to charge on a freemium basis, and to maintain the save states of players’ games on remote servers. These are the foundations of what we might call the first generation of social games, much as the basic console, cartridge and joystick comprised the first generation of home video games from Atari. The sunset years are at hand for the first generation. Just as happened with many portals, now is the time when the revenue engine gets milked and executives cash out. Then come the mass layoffs, studio closures and trade sales (As a side note: If you work in a major social game studio, now is the time to think about moving on before the job market becomes flooded.) For Zynga there will be probably be calls to shutter many of its studios in the name of efficiency and refocusing. This will probably then be followed by talks of acquisition, perhaps by Marissa Mayer’s Yahoo, at 50 cents on the IPO dollar. The second generation needs to be thinking like HBO, not network television. It takes research and prototyping time to develop good game dynamics, but more than that it takes the right technology, talent and faith. This last quality is perhaps most frightening because it pretty much means letting the inmates run the asylum. Games are no different than any other creative outlet in this respect though, but it’s hard for some people (managers, investors, producers, quants) to accept that. They think that games should be much more like software: predictable, mappable and about process engineering but games and players disagree. You may wish that game design was a process, but it’s an art. That’s why the second generation of social games is unlikely to come from any of the current big players. They think too small, just as network television executives tend to think too small and need to be shaken out of their equilibrium by an HBO. By which I mean investing in providing real value rather than only playing the equivalent-value game. While early social game makers were canny in realising that Facebook was about visibility, ever since that tap was turned off their story lacked a second act. (“When Plan A doesn’t work…”) G1 games have become trapped by their own conventional wisdom, trying to pump up the model as much as possible in a classic red ocean frenzy. This has led to bad user experiences, weak track records of innovation and the fear of gameplay. It has also led to a lot of discussions over platform and process, but not product. G2 cannot afford such obfuscation. It has to tackle the value problem head-on. Therefore the fundamental questions that should drive social games G2 (and if they can’t be answered there will be no G2) are these:
Where Is The Value?What is a social game is for? What do players get out of it? Why should they consider it valuable? In plenty of other arenas players exhibit tribal loyalties and spend thousands of dollars on their pastime. Why must social games remain comparatively unengaged, generic and timid? Asking “Where is the value?” is not just about whether the game is any good. It’s asking why should the player play your social game as opposed to a downloaded PC game, a DS game, an Xbox game and so on. What’s the unique value that playing online with others in a social graph of some sort offers to players? Resist the temptation to turn this into a question about you: I have often sat in meetings with well-intentioned designers and executives who have answered this question through projecting their ideas of how players might play in the future (socialising, bringing families together, multiplay), or confusing value for the investor or the company with value for the player (status objects, the opportunity to live a life, purchasing opportunities etcetera). Both are sidestepping the question. Here are some pointers: Forget the Multiplayer FutureIn every game clans and tribes form, and so it can appear that the future of games is to do with community formation. It is often assumed that greater socialising, greater contact and more synchronous loops are what players want, but it’s not. While communities are loud, they almost never represent more than 1-in-20 of players of any game. Social games do not bring people together. Most players in fact play them in a largely single-player fashion, making contact purely for reasons of necessity like trading, earning Energy and so on. Many have tried large multiplayer designs, and failed because the players were just not there. It’s Not Really About StatusMuch hay was made back in the day of the value of virtual goods and status, leading to large projects like PS3 Home and Second Life, as well as cosmetic items in many virtual worlds. There was a time, indeed, when many developers were thinking that status items were all they would sell. They missed the point on this by a large margin. Status is a minority interest in games, and sales of status items tend to be small compared to sale of utility items (in cases where both are available). Most players do not spend that much time on their avatar, do not really care that much about how their virtual house is arranged and when they realise that the rest of the world does not give them social proof, stop buying status items altogether. This can be confusing to understand because in games like pet simulators it seems as though much is spent on cosmetic items. However it’s important to note that a cosmetic item can also be a utility item (for example: to increase my pet’s happiness I must buy flowers etc). A status item is one that has no utility other than allowing the player to be a little creative or show off. Living A LifeVirtual worlds are great as ideas, but boring as experiences for most users. They are often build around the notion of community chat, living a virtual life and otherwise just sort of being in a place and time, but most players want more than that. They want a game. Players play to achieve, to do, to build, to create, to explore, to destroy and to win. They need the game to provide them with a fascinating system which enables them to do all of those things, and usually for the game to also provide an absorbing fiction. This is as true for The Sims as for Skyrim. What games don’t do particularly well is the whole “living a virtual life” thing. They have boundaries, and players know it, and while they will build a lot time and investment into their Diablo 3 avatar to make it the biggest and toughest, all that activity is once again about more winning. The avatar is supposed to be of use, for the player to self express through play rather than only being pretty. So is their farm, city, amusement park, sports team and so on. You build to have something better to win with. The game is always a world to have fun (the joy of winning while mastering fair game dynamics), and if it provides this well (comparative to the player’s expertise level) then synergistic effects like community and fan culture and so on gather around it. However you don’t get there by simply building an empty shell and avoiding the value question entirely. The Real ValueG1 social games are, with only a couple of exceptions, single player games which are free to play and occasionally tax users into communicating or spending to be allowed to keep playing. So where is the value for players in being social? Aside from being free to play, the answer is advancement. Social contact in the context of games provides real value to players when it substantively helps them to win without tying that up in synchronous loops. In other words, to be worth it the contact needs to get me where I’m going, but without obliging me to turn up to do likewise. Players overwhelmingly prefer to play their games on their timetable for their fun, and this is why every single successful online game facilitates this. Whether single-player questing or drop-in/drop-out tables as in Poker (this is why poker is still Zynga’s most solid game), it’s all about the self-propelled, self-organised and self-successful player. “Social” simply helps that happen faster, in what we designers are increasingly calling “parallel design”. So play Journey. Play Realm of the Mad God. Get into a multiplayer server onMinecraft. Notice how they are about cooperation toward advancement? Notice the lack of obligation? Study that. Deepening Value?95% of social games use the same game dynamic. That dynamic is a mix of roleplaying rules (levels, experience points, etc) with wait-or-pay rules (energy, building with clicks, paying to shortcut) and guided goals through a repetitive activity (digging, questing, item assemblage). It has had many linear improvements, from the basic zombie-chomping games of old through the sophisticated Ville-structured games of today. Over the course of their evolution, social game makers have also tended to try and broaden that dynamic with different themes or surface differences in gameplay. So there are monster themes, fashion themes, mafia themes, racer themes, cities, vineyards, castles, sims and so on. Mostly they are the same game (or at least the same type of game) with a variety of different types of set dressing to try and appeal to various audiences. In the casual boom a similar kind of explosion occurred in hidden object, plate-spinning and action-puzzle games. Likewise there has been a similar evolution path for gestural games, from the simple arm-waving of early Wii games through to bright lights of Just Dance, Zumba Fitness and Kinect Sports. Each is an example of linear improvement and broadening of subject matter, but each also shows a lack of depth. For reasons of audience, technology and interface, each proved limited – and so the sense of value for players declined from delight to linear to threshold features (as in the Kano Model of User Satisfaction). There comes a point in all genres where linear improvement and broadening subject matter becomes obvious to the audience. Their play brains start to realise that they are seeing the same frames again and again, with the same actions and the same constraints. So they become instantly boring. At that point the entire genre either goes into its sunset years, or a game maker figures out new depth. “Depth” in this context means that the maker figures out a radical and delightful reinvention of a known dynamic (Halo compared to its contemporaries), or invents/popularises an entirely new dynamic. Depth is sometimes enabled by new technology, sometimes by interface, or by clever design. However it almost never involves adding further depth to a long and broad structure. G2 social games will not simply mean interweaving more complexity into a game like CityVille because that depth will arguably be lost under the already-existing game. It also does not mean trying to find just one more theme, one more spin on the same idea. Deepening usually requires throwing out a lot of what has come before to get back to what matters. Having identified the value, the G2 social game takes the idea of advancement through obligation-free collaboration… and throws out everything else. Social bars, energy, business model, metrics, even platform and technology go. They are all G1-era trappings, and irrelevant to the true value. Some of them may come back, but none should be automatically regarded as necessary. Then ask yourself this: Freed of all the trappings and understanding the true value of social games, what could you build? How could you make it deeper before getting too scared by the fear of not being like everyone else. Just how far you could you push parallel advancement with new dynamics like action, strategy, resource management, puzzle solving or anything else? Now, how to build that? Delivering ValueThere is no law which says that G2 has to happen on Facebook. Nor on iPad or any other platform. It could happen anywhere. Social networking itself has broadened far beyond Facebook in the last couple of years (Twitter, Google+, Path, Instagram, Pinterest…), reminding us that it is a networking function and save state, not a domain. So perhaps G2 social games could happen on Google+ using Google Native Client as its core technology. Why not? Facebook is probably a bad place for G2 because of the weight of G1 competition. While there is no arguing that it was the platform that kicked the whole thing off, in recent years Facebook has become much heavier, and visibility within it is much tougher to maintain. Arguably for users this was a good thing (remember the days when your notifications were constantly full of Mafia Wars?), but the magic has long gone. So G2 will likely not start with explosive growth in the way that G1 did, however it will probably revolve around much more valuable interest graphs than generic social graphs. The fact is that most players’ game graphs in their Facebook games are either empty or full of the orphaned accounts of those who stopped playing. The really dedicated players even go outside Facebook to form communities and add each other as friends in order to build more valuable game graphs. This, of course, violates the intent of Facebook, but they do it anyway. Players gonna play. For G2 to be about true value, the game graph also has to be valuable. Connecting interested strangers produces much more game interaction than limiting it to just friends (such as Monstermind, which doubled its engagement rate in a day by connecting strangers). Players don’t really care about whether they are playing with their friends. They care about playing with others who can help them, and if that happens to be a friend then so much the better. Roleplaying game fans want to play with other roleplaying game fans, and word game fans likewise. If the first round of social games tried to sift through graphs to find those few nuggets, then G2 needs to construct an interest graph of players (many of whom may be strangers) who like the same kinds of game that they like. Turn that into a low-cost, easily distributed, opt-in network that can plug into any game… And that’s how value delivery works. Technology may also have a role to play here. The hard limits of Flash have really started to show, particularly in terms of fast responses, uses physics or complex work (such as believable AI). These limits mean that simple casual, sim and rpg games tend to be the mainstay of the platform because they are known to work. Few are the Flash games that really go beyond that. However there is Unity, which every indie developer I know is busily trying to master. It’s designed for making games, and works on most platforms. Then there is Google Native Client, which enables developers to put games using much more powerful languages into the browser. There is also cloud gaming, which is generally not for games that require split-second responses, but could be very powerful for sim, strategy, massive multiplayer and other games. In short, G2 social games will probably have very different delivery to G1, like the difference between “software” and “app”. ConclusionIf Yahoo was “Search, Generation One” then Google was “Search, Generation Two”. The first generation was the one which became cluttered with all manner of complicated ambitions, poor performance and a whole load of “conventional wisdom” which often proved contradictory. Generation Two, on other hand, realised what mattered and delivered just that. A similar shift is what will make “Social Games, Generation Two” real. If Minecraft were a little more friendly, free to play, a little prettier and a little more easily hooked into social networks maybe that would be it. Or perhaps if Triple Town were a little more parallel. These are examples of games with different dynamics that are simpler than many G1 games, but experimental. One of them has been very successful while the other is more a cult hit. Both show inklings of the future. It’s from these kinds of roots that a second generation of social games will eventually grow because they are about value for the player. Be ready for the shift.
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| Analytics Company Crazy Egg Acquires The Hello Bar Posted: 04 Aug 2012 08:00 PM PDT  Crazy Egg, a company that helps website owners to visualize visitor activity, has acquired the web toolbar product Hello Bar. The Hello Bar is a customizable, relatively unobtrusive bar that sits at the top of a website and directs visitors with a call to action. For example, the bar on Gary Vaynerchuk’s website prompts visitors to “Circle me up on Google+!”, while the one at Eric Ries’ Startup Lessons Learned points to the video of his Lean Startup track at this year’s SXSW. Amee Shah, who runs Crazy Egg’s day-to-day operations, says the company was looking for products that were similar to its own “in that they help people improve the user experience on their websites and they also are very simple and easy to use.” So she found the Hello Bar and started talking to the company that made it, Digital Telepathy. (Digital Telepathy started out as a design agency, but when I spoke to CEO Chuck Longanecker earlier about the company’s SlideDeck plugin for WordPress earlier this year, he said the team is becoming increasingly product-focused.) The financial terms of the acquisition aren’t being disclosed, but Shah says the current Hello Bar team will not be joining Crazy Egg. The company plans to operate Hello Bar as a separate product, with”a few engineers on Hello Bar to keep evolving the product based on customer needs.” And we can expect more acquisitions from Crazy Egg in the future, Shah says, specifically of products “that align with our philosophy of building really simple, easy to use products that do one thing really well.” Both Crazy Egg and Digital Telepathy are self-funded.
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| Unbaby.me? Unfriend.me Instead Posted: 04 Aug 2012 06:09 PM PDT  Seriously, people? Unbaby.me? You hate seeing baby pictures on Facebook so much that you have to use a Chrome extension to block them? Look, I get it. Parents and non-parents sort of can’t stand each other. For god’s sake, we can’t even hang out at the same bar together without it turning into some kind of turf war. (Yeah, that’s right: bar. Apparently, it’s not totally irresponsible parenting to consume alcohol in front the kids. See also: my house, every Friday night). But even though Unbaby.me is only the latest development in the whole us vs. them saga of breeders vs. non-breeders, it actually speaks to a couple of long-standing issues surrounding social networking services: that A) you’re either doing it wrong, or B) the social network itself has failed you in some way. In this case, I’m voting for A. YOU’RE DOING IT WRONG, BABY HATERS No one is twisting your arm to stay connected with us breeders here on Facebook. Too many babies? Feel free to “unfriend” at will. Alternately, if you can’t bring yourself to take that bold of a step for all the social repercussions it involves, there’s also another option: that unsubscribe button in your News Feed. Yep, you can actually tell Facebook that you would like to see no more of Jill-the-baby-picture-posting fiend, thank you very much. Outside of not having a firm grip on Facebook’s settings, here’s another suggestion to save you from more baby-induced outrage in the future. Don’t friend people you don’t care about. Really. Facebook doesn’t get better the more people you add. It gets worse. And then you have to run off to hidey holes like Path just to avoid the mess you created. BUT IT’S ALL FACEBOOK’S FAULT! The other issue with this whole anti-baby backlash is that it implies that Facebook has somehow failed to serve up the right content that interests you. It’s a reflection of Facebook’s inability to properly reflect our real-world relationships. That’s sort of true. This same complaint has led Facebook to experiment with all sorts of filtering mechanisms, including lists, automatic lists, and even one-way subscriptions. None of them really work that well. Lists filter, but too rigidly. If you don’t look at the right ones, you miss things. Subscriptions don’t work because there’s always someone who still friends you because they feel closer to you than you do to them. So yes, Facebook does have an obligation to stop serving up the endless baby-stream to people who never click on the photos, or engage with the proud parents to be. (I’d actually argue that, over the years, Facebook’s algorithm has gotten quite good at doing just that, but I suppose there are still some inescapable baby photos out there which Facebook insists you must see.) IN CONCLUSION: WAH, WAH. Facebook isn’t the only social networking platform where a supposedly infringed upon group wants to complain about one of its use cases. Twitter users have long been chastised for posting what they ate for lunch, tweeting too much from an event, posting their Foursquare check-ins automatically, not being “authentic,” only posting links, and other transgressions. Instagram, meanwhile, seems to encourage a community who post photos of sunsets, landscapes, nature, architecture, foamy lattes or hipsters out on the town (or at least that’s what this Twitter parody account implies.) If anything, it’s a testament to Facebook that it has managed to expand beyond its own initial culture of students, then early adopters, and later, the rest of the world. It’s a testament that it continued to grow even after mom and dad and grandma and grandpa joined. And it’s a testament that it’s the one platform where even the dueling tribes of parents and non-parents can occasionally connect. Even if that means you have to Unbaby them from time to time. Now excuse me while I go work on an app that removes those incessant pictures of your pets. Image via foundshit.
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| Predictors Of The Fundraising Market Posted: 04 Aug 2012 04:59 PM PDT  Editor's Note: This is Redpoint VC Tomasz Tunguz's third article in a series examining trends in the public and private technology markets. (Here are one and two.) It is widely believed that the stock market is a leading health indicator for the venture industry. In reality, however, the performance of the S&P 500 tells us very little about trends in the fundraising market. For this week’s analysis, I evaluated correlating factors for VC fundraising and VC investment using annual data from the NVCA and Yahoo Finance from 2001 to 2011. I examined five possible correlating variables: number of IPOs, aggregate IPO value (proceeds from IPO), number of M&A transactions, aggregate M&A value and the performance of the S&P 500 (year over year change). This analysis time shifts the data by one year. The number of IPOs is the best predictive factor of VC dollars raised from limited partnersThe number of IPOs in the preceding year is the best predictor of the venture fundraising market with a correlating coefficient of 0.77. In contrast, the performance of the S&P is the poorest correlating factor of those considered with a coefficient of 0.38, implying venture fundraising is much more sensitive to the volume of IPOs than to increases public markets indices. Aggregate IPO proceeds correlate fairly well with dollars raised, but given that Facebook’s IPO raised greater than 86% of IPO dollars so far in 2012, a potentially huge distortion of the data set, I suspect IPO proceeds will lose some of their predictive power next year. The median number of venture backed IPOs over the past ten years is 40. In 2011, 45 venture backed companies went public indicating 2012 should be a relatively average year for venture fundraising. Looking toward 2013, the picture isn’t as clear. Through the first half of 2012, 30 venture backed companies have gone public, six fewer than the first half of 2011. And given the poor performance of many of them, 2012 venture backed IPO performance may fall below 10 year medians. Aggregate M&A Value is the best predictor of VC dollars investedThe total value of venture-backed M&A is the best leading indicator of the number of dollars invested in a year also with a correlating coefficient of 0.77. Again, over the last 10 years the performance of the S&P 500 is among the weakest correlations. Outlook for 2012 and 2013Although correlations do not prove causation, they can provide directional insight into the future health of venture markets. Assuming the 2012 trends of lower than average IPOs and M&A hold, 2013 will be a weaker year for both venture fundraising and investment. Sources:
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| Posted: 04 Aug 2012 04:00 PM PDT  It’s almost silly to own an iPad or iPhone without a case — they’re such fragile devices. But not every case is a good one. In fact, we learned in this episode of Fly or Die that not every case even fits. We decided to look at TwelveSouth’s BookBook iPhone case, Hard Candy’s BubbleSlider iPhone case, and the Candy Convertible iPad case by Hard Candy. Only one stole our hearts and minds, and even it is a bit bulky. The BookBook iPhone case from Twelve South is the only case in the bunch that I’d even consider. It’s made of premium leather, looks like a slick little novel tucked away in your pocket, and holds your credit cards, ID and cash all in one place. It costs $59.99, which is a bit steep, but at the end of the day it’ll protect your phone and add a little flare to your daily accessories. However, it’s a tad girthy for a girl’s pair of jeans (though presumably would do fine in a purse). If you’re holding the phone up to your face to talk, you have the extra credit card flap in your face, which is awkward, but that’s what headphones are for. Then we move to Hard Candy’s offerings. In both cases, with the Bubble Slider and the Candy Convertible for iPad, the cases simply don’t fit the devices. Granted, the Bubble Slider is made for the iPhone 4 (which is why it makes zero sense that Hard Candy would send us the caes now), but even still it’s a bit pricey for what it does. The Bubble Slider is one of those plastic cases that breaks the fall by breaking. For $34.95, the value proposition isn’t good enough for me. But where I get really frustrated is with Hard Candy’s Candy Convertible iPad case. It simply doesn’t fit. I like the idea of a card holder and the way it transforms into a stand, but if the case doesn’t fit and lets the iPad slip around within it, it’s probably not a good choice. Especially for $44.95.
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| Posted: 04 Aug 2012 03:00 PM PDT  When I first heard about Unbaby.me, in a TechCrunch Yammer thread the other day, I was seriously excited. Not just because it provides a useful tool for the bitter and jaded non-parents among us. But mainly because I would be lucky enough to write about it. Here’s what I wrote, after being alerted to the thing by editor extraordinaire Eric Eldon:
So what is Unbaby.me? And why is it so important? Unbaby.me is a Chrome extension that recognizes baby photos on social networking sites like Facebook, and replaces them with photos of cats or dogs or cars or whatever you want. You just add to Chrome, update a few keywords, and tell it what to change the photos to. (The default is cats.) Some people will no doubt be annoyed just by the existence of this thing, and I get it: You’re really, really excited about this baby that just popped out of you. You lived with it for nine months and it’s finally fully baked and is now out in the sunshine and it can move around on its own and kind of has a personality. I mean, like, more than a plant or a fish does, at least. Thing is, I’m not excited about your baby. Or babies in general. They’re a little annoying and loud and don’t really care where they poop. They’re really bad conversationalists. They haven’t read Fifty Shades of Gray and don’t have a favorite football team. I can’t take them out to a bar and get them drunk and whine to them about my most recent relationship drama. I’m also too busy playing Peter Pan in San Francisco and drinking away the best years of my life to be concerned with propagating the species. Dude, there’s like, 7 billion people in the world already and I don’t think we need any more. But anyway, this is not about me. It’s about you. And your baby. And you creating a social profile for another human being who’s basically kind of defenseless about the whole thing. It has no input into the decision-making process. It can’t ask you to please untag that photo, it’s really embarrassing and it’s not how it wants people to think about it when it runs for Congress in 35 years. It can’t express its dismay at having its tiny baby weiner out in public where any future girlfriend can see. So when you change your profile photo to a picture of your baby, and when you change your cover photo to a picture of your baby, and when every new Facebook gallery is nothing but 500 pictures of your baby, you make me not want to see pictures of your baby anymore. I mean, the baby’s got no say in this whole thing, right? The good news for you — and the bad news for the rest of us, your baby included — is that Unbaby.me doesn’t really live up to the hype. It frankly just doesn’t work that well, at least in my testing. Maybe I didn’t play with the keywords enough to make it really useful, or maybe I already did a pretty good job of weeding out babies in my news feed. Maybe the makers of this extension will iterate and improve the experience — maybe they’ll go beyond keyword filtering and actually add some real-time photo scanning and baby detection. Who knows? In the meantime, though, we still need a better defense against babies. And your insistence on sharing them with me.
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| 5 Reasons Why The Enterprise Is Not So Boring After All Posted: 04 Aug 2012 02:00 PM PDT  I get this question a lot: Why do you cover enterprise? People always look puzzled when they ask me this question. It’s like they are trying to see deep into my soul. Who is this man who loves enterprise coverage? Is he just dull? Ha! If you think I am dull, so be it. I’ll gladly keep covering the enterprise. Here are five reasons why: It’s so much fun to write about Larry Ellison. Ever see this video about what he says about the cloud? The best thing about covering Larry is that the guy is hilarious and absolutely full of it. Apps don’t suck anymore. It’s awesome to see people get to use technology that they actually like. Enterprise giants have historically made software that is awful to use. “Spending every day making someone's life easier is awesome,” writes Dan Shipper. “Especially when that someone actually wants to pay you for it.” Writing about those cool apps is always something I find of interest. You can no longer separate work and your personal life. Our work and home lives are blending in ways that force us to rethink who we are. TechCrunch has chronicled the shift in how tech is changing the way we live. Now we get to show how this same tech wave is changing the way we work. It’s at that intersection of our personal and work lives that we see the most innovative technologies. iPhones, tablets – they all create beautiful experiences that we use as much in our homes as we do at work. You can smell the blood in the air. It’s like watching a chess game unfold. Larry is no dummy. He’s making his moves. VMware just bought Nicera for $1.2 billion. Why buy the virtual networking technology company? Arguably to derail Cisco, Rackspace and all the others pining for an open cloud. Then there is Amazon Web Service (AWS) – the force from the Pacific Northwest that has built the most sophisticated cloud service in the world. So much so that a source told me recently that the Japanese consider AWS a national threat. I find that fascinating. IT? What IT? Pretty soon there will only be services.. IT will be in your car, your house or in a layer of data that you access through your app. Services will be the means for how all IT is delivered. What does that mean for the corporation? How will our children work in 20 years? Veteran writer Joe Wilcox says covering the enterprise is like throwing rocks into Lake Erie. You can’t miss. There are few people covering it, which I hope will change. There is just so much to write about.
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| Posted: 04 Aug 2012 01:00 PM PDT  Editor's Note: Alexander Haislip is a marketing executive with cloud-based server automation startup ScaleXtreme and the author of Essentials of Venture Capital and The Modern Business Guide to Panel Discussions. Follow him on Twitter @ahaislip. Praise be to Box, the cloud storage company that recently waggled $125 million from private investors to continue its growth trajectory, expand internationally and continue ratcheting up its valuation into the billion-dollar range. There's a lot to like in this story, starting with Box's service. I pulled Box into our company and we use it religiously to version control internal documents. It's awesome and Aaron Levie and his team deserve to get rich from their hard work. And 15 years ago, you could have gotten rich from his work too. Levie would have brought his company to the public markets, seeking growth capital, and you could have invested and watched Box grow from a $600 million valuation last year to a $1.2 billion valuation today. Box would have been open to average investors, folks aiming to see capital appreciation in the public markets and a modest return on their small savings. The high tide of Silicon Valley could have raised even the smallest boats. But today, Box remains private. When it does go public, it will no longer be in its high-growth phase. Chances are it will look a lot like the companies that have gone public in recent years, ballyhooed and heaped with expectations that have failed to produce. The beneficiaries of Box's remarkable growth aren't you and me. We can't save our money and invest it in good, growing companies with an expectation of capital gain. No, the beneficiaries are the venture capitalists, private equity investors and company insiders. The rich will use Box's growth, and the growth of dozens of other similarly impressive private companies, to get richer and retail investors won't have access to the investment. The concentration of wealth into the hands of an ever shrinking few leads to a bifurcated society of have and have-nots that few of us want to see. And the avarice that underwrites this shift is bleeding Silicon Valley of its best talent and the type of people who made it such a remarkable and productive place. AN ALARMING TRENDConsider how a similar situation played out for Facebook investors. The company had a $550 million valuation when Greylock Partners, Meritech and others invested $27.5 million in 2006. The company went on to be worth 100X that over the next six years. I wish I could have locked in a return like that in the public market! Instead, Facebook did half a dozen large private investment rounds while it was in its high-growth phase, benefiting a slew of private investors such as Elevation Partners, Digital Sky Technologies (DST), Li Ka-Shing and TriplePoint Capital, among others. All the investors that came in before shares started trading on the secondary market have seen a capital gain. Just to be clear, this isn't an issue of over-pricing the stock, first day bumps, or the investment banks propping up price. It's shameful that Facebook has lost more than three-quarters of a billion dollars worth of market capitalization each day since it went public. And it's doubtful that money is coming back. There's no perfect apples to Apple comparison, but Steve Jobs took his company from a $48 billion market capitalization in October 2005 to a $104 billion market cap in May 2007. All he had to do was create the iPhone. But even today, after the stock has dropped and dropped, the private investment firms that bought into Facebook before it went public at the minimum doubled their money. (That of course excludes Goldman Sachs and its clients, which are likely regretting they had no financials to consider when they bought Facebook shares at a $50 billion valuation.) The simple fact is that venture capital and private equity investors captured Facebook's era of explosive growth and left nothing for public investors. You can say Facebook is an outlier, a once-in-a-decade aberration, but we're seeing this kind of post-IPO performance more and more from tech companies. Quick, name a tech IPO that's done well recently. Did you say LinkedIn? It's been up 36% since its May 2011 IPO. That sounds pretty good, until you consider that for the three years before it went public it jumped 7X. The private investors that footed a massive investment round then captured the capital gain that could have been in your pocket. Venture capitalists and private equity firms are killing the IPO. When they make large investments in fast-growing growing companies at more than $1 billion valuations, they're effectively doing what the IPO market once did. And in so doing, they're harvesting explosive growth that used to accrue to public market investors. THE GOOD, THE BAD & THE INEQUITYCompanies today wait longer to go public. That could be construed as a positive thing. There are fewer garbage companies going out, fewer instances of Webvan or Pets.com. We should be glad for that, I suppose. And maybe the ability to stay out of the public markets helps startups focus on long-term goals instead of short-term earnings. Operating in the public market imposes costs on a company including listing fees, legal fees and accounting audit fees. Moreover, there's the threat of activist shareholder intervention, stock manipulation from hedge funds and the possibility of hostile takeover. There are lots of reasons executives choose to keep their companies private and take growth equity from investment firms instead of individuals. As Box's Levie told TechCrunch: there are elements of the company's strategy, like investing heavily in international growth and "deep technology", that Box has "more latitude" to do as a private company. But what's good for the individual isn't necessarily good for the ecosystem. We the people have decided that big companies are more responsible when they report to a broad base of shareholders, that they are more accountable when we can all scrutinize their financials and that our economy works better when major companies act as public entities. That's why congress established the SEC, that's why we require transparency, that's why we support an ecosystem of service providers that create nothing save more efficient markets. It's for the greater good. I'm certain the people who bought Facebook shares on the secondary markets when it was still private are starting to appreciate the value of transparency and financial disclosure. But there's a more pernicious product of the shift away from public market IPOs to massive pre-public rounds. It's that late-stage venture capitalists and private equity investors will take 20% of the valuation increase that Box experiences between now and the time it eventually goes public in carried interest. The partnerships, run by people who already make an average of between $750,000 to $1 million each year already, will collect a huge payout. I'm not talking about skilled venture capitalists who handhold naïve entrepreneurs and facilitate the creation of great companies. I'm talking about leaches that offer little beyond an extended cash runway. To be sure, university endowments, public pension funds and other large pools of capital benefit too and many small investors have exposure to the value created in Silicon Valley through these intermediaries. But they too would benefit better from promising and proven startups entering the public market. After all, venture capitalists and private equity investors might well be the world's most expensive money managers. We're witnessing a technology boom in Silicon Valley, where real companies are creating valuable products. They're also creating wealth. There was a time when that wealth would be spread around, accessible to anyone with savings and a stockbroker. But now massive pre-public investment rounds are taking that wealth out of the reach of regular investors and putting it into the pockets of a select few.
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| Grum: Inside The Takedown Of One Of The World’s Biggest Spam Networks Posted: 04 Aug 2012 10:30 AM PDT  As Spring cracked the Moscow frosts and March rains doused the streets, a computer in an innocuous server farm somewhere in the heart of the city winked to life. It was 2007, a year when many people became truly invested in online life. Twitter was a year old and the most popular smartphone was the Blackberry Curve – a pure email machine. It was a year ripe with promise for cyber-everything. And a group of hackers, unnamed to this day, wanted to grab their piece. The server first sent a blast of emails containing a link to a piece of software that many around the world wanted to download. Once they grabbed the Trojan Horse, the infected program took over computer after computer, creating something security experts call a botnet – a collection of infected machines controlled by a central command and control unit (CnC). This Moscow server, hidden behind IP address 72.232.49.214, began receiving incoming messages from a number of computers around the world. A whole swath of California lit up as communicating programs came online. Then New York, then London, Berlin, and Minsk. Computer after computer began chirping out requests to the mothership. The infection spread thanks to a mixture of gullibility and trust seen time and time again in the annals of computer security. The Grum botnet was born. It took a few days, but ultimately 120,000 machines spoke to the Command and Control server in Moscow and the server messaged back. Some machines dropped out of the network thanks to vigilant users but others quickly took their place. It was like a mold grown over the globe, spores spreading through various networks. Grum sent over a quarter of the world's spam and was one of the most ingenious botnets ever created. But, with savvy, a lot of luck, and cooperative ISPs, the Grum botnet dried up and died last month. Here's the whole story. The VectorThat March, Internet users began receiving emails from admin@microsoft.com with the subject line "Internet Explorer 7 Downloads." A click later and they were at a bright splash page purporting to offer a fresh download of the latest Microsoft web browser, Internet Explorer 7. The download was a dud. Clicking on the link brought nothing but a small file called ie7.0.exe. Running it revealed nothing – just a little gibbering in the hard drive and then silence. Users could click all they want – IE 7.0 wouldn't appear. To many, this was just another bum link on the Internet. But inside their computers, something was happening. The skittering meant something had been installed on the hard drive, within a temporary Windows directory. The file was winlogin.exe, an innocuous enough name that might have been familiar to slightly savvy PC users. In less than a second, however, the program burrowed its way into the computer's registry – a database of information about the machine – and added itself to the list of programs run when the computer begins to boot. Eventually, the program was identified as the Grum-A aka Tedroo and Reddyb. It was probably written somewhere in Russia and carried a payload called a “rootkit” – a program that gave an outside user administrator access to the hard drive. Grum listened for a set of commands sent by the CnC servers. The simple commands came through a standard HTTP port and could "update" itself automatically. Initial reports saw the worm as fairly harmless. One security firm described it this way: The execution of this virus leads to an attack on all executable files that it can find stored in the hard drive of the infected computer system. The presence of the W32.Grum.A will also allow the installation of a rootkit which is used to conceal the fact that the system has already been compromised. The user normally is led to a false sense of security believing that the computer system has maintained its integrity. The primary locus of infection was a program that ran every time Windows booted. By adding code to a kernel library called ntdll.dll, the virus was able to hide and run itself automatically every time the user started his or her computer. Deleting ntdll would be catastrophic and because it was a high-level, privileged file it was nearly impossible to pull it off. More importantly, however, is the way Grum worked internally. Each copy of the virus spoke with a set of CnC nodes and the CnC system could segregate infected computers into different secondary groups. However, the program had a fatal flaw. The virus contained a set of hard-coded master IP addresses. Instead of sending commands to, say, grummaster.com, the program sent messages to a set of two or more CnC IP addresses. Like a biological virus primed to thrive in a certain type of medium, the Grum virus was susceptible to defeat if someone knocked out each of those CnC IP addresses. The commands weren’t human readable – there was no “SEND SPAM” command – but it was fairly easy to see what was going on with a bit of effort. Grum's creator's foresaw this problem and placed their CnC servers in countries that had, in many cases, lax or nonexistent, cybercrime laws. The initial IP addresses were in Russia but others popped up in Panama, the Netherlands, and the Ukraine. To be clear, there was nothing inherently bad about these ISPs. They weren't about to practice Internet censorship and given the distributed nature of the CnC system, the Grum botnet kept a low profile even as it sent its commands out to various parts of the network. As the botnet spread, its creators sent out periodic updates that fixed bugs and identified new CnC servers. If a CnC server went down, the coders would update a new binary with the new IPs. These binaries would spread slowly because not every infected machine would check back in with the mothership every day. Like Microsoft or Apple pushing out OS patches, the Grum makers were upgrading their virus regularly, adding new features and fixing problems. The Grum botnet was one of the most robust and powerful in the world. Aside from its single, glaring flaw, the system worked without peer and slowly began spamming the world, mostly with poorly worded pharmaceutical emails. Every time someone pulled the plug on a CnC server, a new one popped up somewhere else. "Look at it from a criminal’s perspective, you have that much of a resource," said Carel van Straten, a security researcher at Spamhaus. "You’re going to try to keep it online and try to keep it going." And that's what the Grum creators did – for half a decade. CnC Virus FactorySpamming isn't very lucrative. Brian Krebs, a security reporter, notes that while businesses spend $40 billion per year for anti-Spam technology, the estimated revenues of most major spammers hover at around $150 million in a good year. In the bell curve of spammers, however, most end up on the side of making very little. In an excellent series, Krebs was about to track down the creator of Grum and its leader, a hacker name Ger@ or Gera/GeRa. By tracing money back to the source, Krebs was able to assess who, specifically, was making the most money from spamming. Gera's affiliate account, gleaned from a list of payments for the pharmaceutical sales program SpamIt and Glavmed, showed that his efforts brought in $6 million in 2010. This data suggested that Gera was a very prolific spammer. Further leaked documents showed repeated conversations between SpamIt leader Dmitry Stupin and Gera. Stupin called Gera out for his practices, saying that he was beyond compare when it came to "trouble with hosting providers." Krebs' big find, however, was a name: GeRa received commission payments for all of those accounts to a WebMoney purse with the ID# 112024718270. According to a source who has the ability to look up identity information attached to WebMoney accounts, that purse was set up in 2006 by someone who walked into a WebMoney office in Moscow and presented a Russian passport #4505016266. The name on the passport was a 26-year-old named Nikolai Alekseevich Kostogryz. This is as close as anyone has gotten to Grum leadership. "No one has been convicted as of yet. Nor officially assigned to be Grum’s botnet-herder," said Bogdan Vovchenko with Group-IB, computer security response team in Russia. However, it was clear that whoever was behind it was very wary. My own attempts to contact Grum leaders – including an account associated with the 26-year-old Kostogryz, failed. The Grum team really didn't want to be found. What this reticence meant, in short, was that Grum was probably run by a small team led by Gera and that, even given its reach and relative lucrativeness, the entire operation was streamlined. While it could move fast, this could also mean the organization wouldn't be able to react to a massive shutdown. Other botnets had ways to dynamically reassign CnC servers very quickly. Grum did not. Gera was also not particularly beloved by ISPs or even the affiliates that used Grum's botnet to send pharmaceutical Spam. It was, in other words, a nearly perfect target for some dedicated anti-spam researchers. The Bot FightersIn 1998, a former Pink Floyd production manager and songwriter, Steve Linford, realized his computer-consulting clients had a huge problem: spam. Over the course of about a year, Linford began collecting the source of most of the spam circulating on the Internet and created a list called ROKSO – Register of Known Spam Operations. This living list, updated regularly with new and reformed spammers, has long been the first line of defense for most spam fighters. For years, Linford lived on a houseboat in the Thames but now the organization has grown, with headquarters in Switzerland and the UK. Linford's organization, Spamhaus, went on to become an anti-spam powerhouse, garnering respect and fear from ISPs around the world. ROKSO itself blocked the 100 known spam operators responsible for 80% of spam and systems that used its data were able to reduce spam considerably. However, some still got through, and the worst of the spam came from the relatively anonymous botnets. One researcher, Carel van Straten, worked from Amsterdam and watched botnets rise and fall. A cheerful senior spam researcher, he was very well-versed on the ins and outs of rogue server hosting. Spamhaus had a big stick with which it could police the Internet. All it needed was a target. The soft spoken Senior Staff Scientist for FireEye in San Francisco, Atif Mushtaq, had that target. Mushtaq studied computer science at the University of Management And Technology Lahore and worked as a network architect for Palmchip in 2008. He moved from Pakistan to the Bay Area where he began writing a series of concise, sometimes breathless, posts about his efforts to find and shut down popular botnets. None of these security experts enjoyed the limelight. Anti-spam researchers have been harassed, threatened, and their websites have been shut down by angry spammers. Spamhaus, for example, rarely publishes photographs of its researchers in order to protect their privacy online. Meanwhile, in Moscow, a computer security rapid response team was also following the Grum virus. In 2011 the botnet remained stable and strong but in the spring and early summer of 2012, researchers noticed that the number of CnC servers was falling slightly and that multiple servers were in only three countries – the Netherlands, Russia, and Panama. Perhaps all it would take was a few good taps to shut it down? "Grum was the world's number one spam botnet back in January 2012," said Mushtaq." Then in the last six months, there were less command and control servers and it was sending less spam. I didn't know why it was happening but I told myself 'Okay, this is the right time to do it.'" Mushtaq began by assessing the list of CnC servers for holes. Immediately, a few things stuck out. 190.123.46.91 Panamaserver 195.190.13.150 SteepHost DC-UA 195.190.13.182 SteepHost DC-UA 195.190.13.206 SteepHost DC-UA 195.190.13.222 SteepHost DC-UA 195.190.13.78 SteepHost DC-UA 91.207.4.215 SteepHost DC-UA 91.207.6.134 SteepHost DC-UA 91.207.6.234 SteepHost DC-UA 91.207.6.35 SteepHost DC-UA 91.207.7.6 SteepHost DC-UA 91.207.7.98 SteepHost DC-UA 91.207.8.102 SteepHost DC-UA 91.207.9.252 SteepHost DC-UA 91.239.24.251 GazInvestProekt ltd. 94.102.51.226 ECATEL LTD 94.102.51.227 ECATEL LTD 91.236.120.6 PROEKTPROFDEVELOPMENT-NET Although it looked like a large list, most of them were in the same location and some even in the same building. SteepHost DC-UA, for example, was based in Kharkiv, Ukraine in a building by the main train line. ECATEL was a Dutch ISP and Panamaserver was, as expected, in Panama. The rest were in Russia, including GazInvestProekt, a small ISP in Pskov. None of these ISPs were "rogue," per se. It was generally bad business for an ISP to shut down a server or IP address based on complaints by security firms – he-said-she-said back and forths were rarely constructive. However, they did respond quickly whenever someone reported true abuse. "ECATEL does have a very long history of hosting shady things," said van Straten. Seeing Mushtaq's detailed posts, van Straten reached out to FireEye to see if they could help take down some of the servers. As luck would have it, Mushtaq was ready to move on his first decisive attack. Killing The HydraOn July 9, 2012, Mushtaq began musing on a Grum takedown. "For a successful takedown attempt, we need to clearly identify Grum’s command and control coordinates. We also need to find out what would happen if the master CnC servers become unavailable during a takedown attempt. If Grum has a fallback mechanism, then we need to disrupt the secondary CnC structure as well and so on. The most important of all is the geo location of active command and control servers. Historically, it has been relatively easy to shutdown CnC servers located inside of the U.S. as compared to countries like Ukraine, Russia, and China," he wrote on his blog. "Keeping all of this information in mind, I am getting mixed feelings. I can see a few factors that can go in favor of the Grum botnet. At the same time, Grum has some obvious architecture-level weaknesses." However, as he examined the servers, he noticed Spam levels were dropping precipitously – down 30% over the last year at least – and the thought the time might be ripe to pull the plug. "And then I thought about all these reasons — those servers are taking less and less spam traffic – I thought that if I tried to take it down now I'd have to do less work," he said. Mushtaq reached out to his network of researchers and began aiming at the servers in the Netherlands. These seemed the most ripe to his entreaties as he had no contacts in Panama or in Russia who could help. In Amsterdam, he had Van Straten. On July 16, 2012, Atif wrote on his blog "Dutch authorities have pulled the plug on two of the CnC servers pointing to IP addresses 94.102.51.226 and 94.102.51.227.1 Thanks to the Dutch authorities for swift action." Part of the botnet was down. However, that was just the beginning. With the Dutch servers down, the botnet creators had a few days in which to bring up new servers and send out updates to all of the infected computers. At that point, time was against him. He began to reach out the other providers. One developer, Isidro Gonzalez, told Atif that he could try to help shut down the botnet in Panama. "I'm a software developer from Panamá City, Panamá and I’ve been following your recent saga with Grum. I thought about spammers within our country but I had no idea our country was part of a huge botnet like this. So, I wonder, how can I help?" he wrote. Around the world, sysadmins were watching the Grum takedown with interest. In Moscow, a response team from Group ID was at the ready to begin taking down the Russian and Ukrainian servers. Van Straten volunteered to assist in contacting various authorities. "Atif could not get those providers to respond to him and well, we have been around for 12 years or something now. We have a lot of good relationships and a big hammer. So we contacted the ISPs that were still hosting the last servers and we managed to get all of them online in a reasonable timeframe because the problem basically with botnet like this is that if you keep one server online, it allows the operators to push out a new binary that has an updated list of command and control servers," said van Straten. "Here at FireEye labs, we are monitoring Grum’s activities on a 24/7 basis. Any attempt to recover this botnet will be noticed. I don’t know if the security community will eventually be able to take down the rest of the Grum botnet, but we are trying and trying very hard. We did not give up after the first failed attempt and will continue to contact the Russian and Panamanian authorities through different channels. So this is an operation still in progress. I will keep you informed with the latest updates," wrote Atif. Van Straten began working more intensely with Atif and the pair was able to convince SteepHost in the Ukraine to shut down their servers. The worked closely with a response team in Russian, Group ID, to hit the servers quickly and quietly. "At that point, I think there were four remaining, one in Panama, one in Russia, and two in the Ukraine," said Van Straten. One of them, Ecatel, was very interesting. They took down most of the servers – the Netherlands servers were gone and Panama was about to wink out. "Ecatel does have a very long history of hosting shady things," said Van Straten. However, Spamhaus' "big hammer" worked. The Ukraine servers were toast. And then one more came back up again. "It got a little bit fishy. One of the IPs that used to be a CnC of the Grum botnet was taken offline, but it came back, and the ISP said, 'Yeah, we have a security issue. Some servers have broken into,'" said Van Straten. "Well, I mean, what are the chances that that same IP would become a command and control node again? You can never tell. The ISP says, 'Yeah, we formatted the machine.' Okay. Well, they're in the Ukraine, which is not like we can go over and check." As the Grum "bot-herders" saw their servers die one after the other, they continued to try to bring up new servers. Mushtaq wrote: We immediately shared this new information with three different parties—Carel Van Straten and Thomas Morrison from Spamhaus, Alex Kuzmin from CERT-GIB, and an anonymous researcher who goes by the pseudonym Nova7. After they got all the evidence from my side, they moved quickly passing this intelligence back to their contacts in Ukraine and Russia. As a result of this overnight operation, all six new servers in Ukraine and the original Russian server were dead as of today, July 18, at 11:00 AM PST. 5 years, 3 months, and 17 days after the first emails began spewing out of the Grum botnet, the last server was dead. The Internet got just a bit quieter. The After PartyMushtaq was stunned. The bot was dead. 120,000 Grum IP addresses dried up to about 21,505. These zombies, unable to communicate with their CnC nodes, would eventually disappear, unable to send out any more spam. The only way to restart Grum would be to reassign the dead IP addresses, and Spamhaus would make sure all of those were on a watch-list. "In a certain sense, we were kind of lucky with this, that all the ISPs that involved here, that we have an existing relationship so that when we contact them, we don't have to explain who we are and why this is bad and what it is and et cetera, et cetera," said Van Straten. Spamhaus allowed them to attack with a purpose and not needle ISPs with random requests. But Mushtaq wasn't stopping there. On the 18th, Mushtaq wrote: "There are no longer any safe havens. Most of the spam botnets that used to keep their CnCs in the USA and Europe have moved to countries like Panama, Russia, and Ukraine thinking that no one can touch them in these comfort zones. We have proven them wrong this time. Keep on dreaming of a junk-free inbox." "We are definitely very happy," he told me. He reminded me, however, that Grum is only the first of many. "When we are monitoring spam botnet in real time it's a good feeling to see the level of spam going down." "Did you guys go out to dinner or anything?" I asked. "Unfortunately, all of the Spamhaus guys are from different parts of the world so it was not like that. There was no get-together, I would say. But yeah, I went out with my family and we had a good time." "I was really happy," he said.
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| Gillmor Gang: I Can’t Hear You Posted: 04 Aug 2012 10:00 AM PDT  The Gillmor Gang: John Borthwick, Danny Sullivan, Doc Searls, Kevin Marks, and Steve Gillmor — struggled with Comcastic bandwidth and hours on hold as Twitter and Apple tweaked their business models. It seems that Twitter is refurbishing the accomodations within 140 characters to create a nice new home for Twitter apps, in the process giving the Flipboard to aggregators outside the mother ship. Apple, on the other hand, is opening Apple TV and the iPad to Hulu Plus and Amazon Instant Video respectively. @dannysullivan thinks it’s bad news for Roku fans, and Doc, who’s now working on Rupert Murdoch’s boat, is busy stealing content from his own bad self over transcontinental Slingbox. It’s TV Everywhere, except here. @stevegillmor, @dsearls, @borthwick, @dannysullivan, @kevinmarks Produced and directed by Tina Chase Gillmor @tinagillmor
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