29 October, 2011



What video game remakes can teach Hollywood

Posted: 29 Oct 2011 09:00 AM PDT

EDITOR'S NOTE: Each week, VentureBeat’s Dean Takahashi writes a column on videogames called The DeanBeat, while executive editor Dylan Tweney is writing a technology and business column called Dylan's Desk. They are available to newsletter subscribers a whole day before they appear on the VentureBeat website. This week, senior editor Devindra Hardawar is taking over for a flu-ridden Dean.

Remakes of older games are becoming increasingly more common, and for gamers who missed out on a particular title the first time around, or just want to relive the experience, they’ve become delicious treats to tide them over between big budget game releases.

I also watch plenty of movies. Let’s just say Hollywood remakes typically don’t elicit the same sort of excitement from moviegoers (especially fans of the original films), nor are they generally well-liked by critics. (Yes, there are exceptions, this summer’s Fright Night remake was admittedly awesome and well-received.)

It’s clear to me that there’s something video game remakes are doing right that movie remakes are missing out on. Let’s take a look at a few of the differences.

Game remakes give consumers something they want

Most of the titles currently on my gaming queue are remakes of games that I’ve already played, and loved, years ago. On my iPhone, there’s Final Fantasy Tactics: War of the Lions (a port of the PSP version, which itself was a port of the original PlayStation game) just a swipe away; on my PlayStation 3, I’m replaying both Shadow of the Colossus and Ico, available now as a high-definition collection; and on my Xbox 360 there are too many to name (Guardian Heroes, Beyond Good and Evil, and more).

The impetus behind game remakes is generally to open titles up to new audiences, while also including plenty of goodies to appease existing fans. With movie remakes, on the other hand, the goal generally seems to be getting enough butts into seats to make the project profitable. Not all film remakes fail (I’m a big fan of John Carpenter’s version of The Thing, The Fly, and plenty others), but they’re rarely impressive.

Of course, this may be an unfair comparison. Movie remakes are entirely new productions that often rehash the plot of an earlier film, while we’re seeing game remakes now that range from simple ports, to high-definition upgrades, to full-scale reproductions (see the upcoming Halo Combat Evolved Anniversary). Still, it’s worth comparing how these two industries approach the notion of remaking past titles.

Game remakes are cheaper than new titles

One of the most compelling things about game remakes is that they’re just so darn cheap. The Shadow of the Colossus and Ico collection costs just $39.99, while typical PS3 titles are $59.99. For titles distributed digitally, the savings are even greater, with most selling for between $10 and $15. Occasionally digital titles creep towards $20, but they’re still a bargain compared to new game prices.

It’s hard to fault Hollywood for charging full price for remakes, but as a discerning consumer I definitely feel annoyed when it costs the same to watch “Yet another horror remake” as something truly original. For titles that get re-released into theaters, something that’s happening more for IMAX titles due to the limited amount of screens available, it seems even more egregious to charge full price. (Recently, AMC theaters experimented with bringing back a few blockbuster titles like Star Trek to IMAX screens for just $7, a model that I hope is replicated in the future.)

Soon we’ll see 3D film re-released in theaters (James Cameron is working on Titanic 3D, and 3D versions of all the Star Wars films are in the works as well), and you can bet they’ll be priced the same as new 3D films.

Game remakes typically don’t repackage old ideas as something new

Perhaps what’s so refreshing about game remakes is that they typically aren’t try to be something that they’re not. When you’re getting an HD port of Ico, you know exactly what you’re in for — it’s not just another game pretending to be Ico. Film remakes, which usually involve new directors, actors, and often even a different setting, have a harder time recapturing the magic of the original source material.

Ultimately, this may not be a lesson that Hollywood can repeat. It’s far easier to port and polish a game for a new console, than it is to produce a new film based on a previously used idea.

And to be clear, it’s not as if I’m against all remakes. One of my most anticipated films of the year is David Fincher’s version of the Girl With the Dragon Tattoo, an adaptation of the popular novel that was already made into a successful Swedish film. But at the same time, I’ve seen enough useless remakes in my time to be wary of them.

Perhaps at some point, Hollywood can learn something from the way the gaming world treats classic titles.

Filed under: games, media

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From smartphones to televisions, how Apple will avoid the fate of RCA

Posted: 29 Oct 2011 07:00 AM PDT

The economics of the consumer electronics industry dictate that on a long enough timescale, all products will become low-margin commodities. The companies that make products household names are destined to fade from the public’s memory. Will Apple suffer the same fate as others before it, such as RCA, who revolutionized television sets in a similar fashion but were relegated to the dustbin of history decades later?

It’s products will most certainly be commoditized, but thanks to its ecosystem of software and services (the Stores and iCloud), it will largely avoid the fate of RCA (and may just re-revolutionize the television itself).

We owe Apple for cracking the smartphone nut, re-imagining what a mobile device should be, and aggressively marketing that vision to the world. Smartphones are now mass-market household items, and although about 65% of all Americans do not own one, that number is sure to change in the coming decade. (Apple did the same for tablet computers, but let’s stay focused on one market for now.)

Years from now we will look back at the early 21st century and mark it as a true turning point in the story of our species. When smartphones and mobile broadband saturate most of humanity in the coming decade, most of us will be operating in the same river of instantaneous information, the effects of which we’ve yet to fully experience. See the slide below for an early example of these effects. [1]

But how long will society be specifically thanking Apple for this transformation?

RCA had done what Apple did for the smartphone: making the electronic television set a household item. Philo Farnsworth may have actually invented the first all-electronic TV, just as Palm and Microsoft had made early attempts at smartphones before, but it was the radical approach of future companies that made both devices truly mass-market. Despite RCA’s initial success, over sixty years later few can recall who deserves credit for that explosive adoption.

I posit that Apple’s reputation as the smartphone revolutionary (and global information empowerment writ-large) will not fade from society’s collective memory in the same fashion.

The fate of consumer electronics devices is commoditization: a decrease in prices such that gadgets descend the ladder of affordability, from expensive luxury good to cheap commodity.

Commoditization occurs because of the underlying technology of these devices. To profitably manufacture and globally distribute a gadget like a smartphone, companies must make an extremely large initial capital investment.

The chips that run our gadgets are scientific marvels, and the factories that produce them (semiconductor fabrication plants) cannot be built for tens of millions: they cost billions. There’s just too much precision machinery, cleanroom necessities, and other operational considerations that make it an all-or-nothing investment.

In addition, chassis manufacturing requires costly CNC machines (tools that take 3D design schematics to create objects by sculpting metals with laser-precision) and the skilled labor to operate them. There’s also years of research and development that are factored into this equation as well.

These costly factors of production are offset by economies of scale, which dictate that at large enough scales, companies can mass-produce consumer electronics at a profit (ironically also making them quite affordable). At the same time, gains in manufacturing efficiency and automation coupled with improvements in semiconductor design (Moore’s Law) bring down the price by several degrees of magnitude each year.


An iPhone factory in China [2

Therefore, on a long enough time scale, selling consumer electronics is a low-margin game. The bottom line is that a company will eventually run into a corner selling hardware in the consumer electronics business, unable to distinguish themselves from other brands and losing their “upper-tier” image.

RCA’s fate was no different. The same economics applies to the production of televisions, and even more so to the large flat-panel displays peddled at every BestBuy in the nation. The size of the machines that produce the large sheets of glass from which TVs are cut increase each year, making the production of larger TVs cheaper. This occurs year after year, with the same gains in technology and manufacturing that other gadgets like phones experience as well. Throughout the 1960s and 70s, television production became globalized and cheapened, in turn devaluing RCA’s product.

There is no doubt that Apple is on the same course. But unlike RCA, Apple has a plan in place to circumvent the problem (thereby keeping its image high in the public consciousness as long as possible). The writing is on the wall. Within five to ten years, producing the hardware for iPhones and iPads will be dirt cheap, and competition will keep driving prices down, eroding margins for every player in the industry.

The solution is in the Stores: the App Store, iTunes Store, iBooks Store, and all other digital media stores. With the iCloud mobile storage and syncing solution as the final glue that binds all stores across all devices, once users bring their digital lives into Apple’s ecosystem, it’s extremely difficult for them to get out.

Technology analyst Horace Dediu has crunched the numbers on precisely this type of “lock-in” effect, estimating average revenue per year per iOS user of about $150. He’s careful to note that they are recurring figures, meaning customers are expected to spend this amount indefinitely.

Why will Apple’s name as bastion of the information age last into the ages? Because their ecosystem of software and services will keep everyone entrenched in their system, making it too costly and inconvenient to switch over to other providers. Each new purchase opportunity will yield to Apple, reinforcing their presence in consumers’ minds. These recurrent purchases are not only good to the public image but also to the bottom-line. Dediu’s valuation of the company based on the recurring revenues of its install-base is a whopping $620 billion by 2014 (see chart below).

The long-term value of Apple, not just its image, rests on keeping customers entrenched, not selling hardware (though that will continue to be lucrative for some time as well).

To compete against this strategy, companies will need to fight over the consumer experience. Apple has understood this for a while (that’s why they don’t advertise detailed specs like RAM for iPhones and iPads). The entire battlefield has changed. Even the late Apple CEO Steve Jobs is quoted in his latest biography as saying that competitors like Microsoft and Android “just don’t get it” (referring to the overall consumer experience).

Apple has built a vast playpen, locking in its customers with walls as high as the sky. As this site has covered before, Apple is likely to extend this playpen to televisions soon. Consumers will be delighted to experience the same software and media on their iPhones and iPads in their living room. But competitors are not standing by idly: just yesterday Google signaled their intention to compete in the re-imagined TV space using the same weapons of software and services: Google TV will now directly support Android apps. This will ultimately benefit consumers greatly. Apple will trump the introduction of apps to TVs with a new user interface built on their Siri voice-recognition technology introduce in the iPhone 4S. Thus, Apple is well-placed to re-revolutionize the TV market and be recognized for it through the ages.

It’s a pity RCA never had any apps to sell!

[1] Slides are from Kleiner-Perkins-Caufield-Byers partner Mary Meeker’s presentation on Internet Trends given at the Web 2.0 Summit in San Francisco on October 18. It can be found here.

[2] Image of Chinese iPhone factory from WIRED U.K.

Filed under: mobile, VentureBeat

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Netflix CEO: Lessons I’ve learnt

Posted: 29 Oct 2011 05:00 AM PDT

Reed Hastings and Paddy CosgraveNetflix has been under pressure recently due to the controversy over the company’s plans to split its DVD rental and streaming video businesses.

However, Netflix Chief Executive Reed Hastings seemed quite relaxed in a fireside chat at Dublin’s F.ounder’s conference on lessons he has learnt over the course of his business career.

"There’s a ton of lessons I’ve learned over two companies," said Hastings, whose first company was Unix software tools firm Pure Software, "The great thing about being a serial entrepreneur was that you get to make different mistakes the second time."

One of Hastings most unusual sources of business wisdom was his marriage counsellor. At Pure Software, Hasting was programming at night and trying to be a CEO by day. Given that he also had a new baby, his family life suffered."I was a bad husband and an absent Dad.” explained Hastings.”My marriage counsellor became a great CEO coach and mentor. He forced me to admit that I cared more about the success of the business than the marriage. My wife could forgive me because I wasn’t a lying son of a bitch; I just had warped values. I learnt that total commitment to the truth, even when it is uncomfortable, is the right way to build a company."

At Pure Software every time a mistake was made Hastings tried to implement a process to avoid repeating it. This was, in itself, a mistake. Over time the company “became less and less fun to work at". He resolved to do things differently at Netflix."As we built Netflix we set out to create a different kind of culture." Instead of responding to increasing complexity with more process, instead Hastings wanted to give employees more freedom and responsibility. For example, Netflix shares financial data internally and trusts employees not to leak it. Hastings sees this as the opposite of Apple’s culture of secrecy where the majority the employees don’t know what’s going on.

Netflix started off with a standard vacation model of 2 weeks per employee. One employee asked “Why do you count how many days I work but not how many hours I work in the day?” As a result Netflix employees no longer has a fixed limit of vacation days per year. This policy is rarely abused. "We also don’t have a clothing policy but nobody has come to work naked lately.”said Hastings.

Finally, Hastings announced that Netflix will launch in the UK and Ireland early next year.

Filed under: Entrepreneur Corner, media, VentureBeat

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Get tips from Y Combinator alumni at Grubwithus dinners

Posted: 28 Oct 2011 06:00 PM PDT

Grubwithus, the Y Combinator startup that lets you book group meals with strangers, has opened registration for its second round of get-to-know-you meals featuring successful alumni of the startup accelerator. The meals, which will take place in November, are happening in seven cities across the U.S., and spots are selling out fast.

“Last time we did it, they sold out so quickly, we didn’t have enough,” Sen Sugano, director of business development at Grubwithus, told VentureBeat.  He says that his team is actively working to add more seats to keep up with demand. The dinners will take place in San Francisco, Los Angeles, New York, Chicago, Seattle and Washington D.C.

The roster of recent Y Combinator graduates includes top companies like Reddit, Dropbox, Airbnb and dozens more, making it one of the most dynamic networks of entrepreneurs anywhere on the planet.

The Y Combinator alumni meals are an ideal venue for up-and-coming entrepreneurs to meet with the founders of today’s hottest startups, and to get advice on how they too can get their company into the next batch at the Mountain View, CA accelerator program. This is the second time GrubWithUs has hosted an event for potential Y Combinator applicants.

The get-to-know you meals could serve more than one purpose for a wry entrepreneur. While the application tips and mentorship opportunities could prove invaluable for getting your company accepted into the next class at Y Combinator, if you’re crafty enough, you may land a new customer for your product or service, or score a future employer.

Grubwithus has played a variety of matchmaker roles the past. The company hosted an HR and recruiting meal in San Francisco for Zynga, and Sugano told VentureBeat that one of their top grubbers in Chicago took a job with someone whom she met at a meal.

Alumni from Picplum, Earbits, Paperlinks, Tutorspree, CrowdBooster, Aisle50, and GraffitiGeo are just some of the many participants in this year’s meals.

Filed under: Entrepreneur Corner

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Tapjoy creates app marketplace, says Apple has nothing to do with it

Posted: 28 Oct 2011 04:12 PM PDT

TapjoyNews leaked overnight that mobile ad monetization company Tapjoy is launching an application discovery marketplace on Tuesday.

“We didn’t intend for it to get discovered,” said a company spokesperson in an interview with VentureBeat, “Tapjoy realized in order to get really big, we needed direct relationships with consumers.”

Some argue this is a way for Tapjoy to circumvent Apple’s new ad policies. Prior to the shift, Tapjoy was paid by app developers to promote apps by offering virtual currency for downloads. It worked like this: You’re playing a mobile game, you see one of Tapjoy’s ads for another game, you download it, and you get virtual currency in the original game you were playing. But Apple put the kibosh on this when Tapjoy’s supported games climbed the App Store most popular charts, regardless of whether the increased downloads were from active players, and started grabbing even more downloads as a result.

But Tapjoy disagrees. “It is not [a way to circumvent Apple],” said Tapjoy’s spokesperson. “In fact, the wheels for this were put in motion long before Apple ever changed their policies.”

Tapjoy portalTapjoy’s new web app, which can be found here, will take the form of a marketplace aimed at letting consumers directly interact with Tapjoy. Those who opt-in can connect their accounts to the App Store and start gaining virtual currency in games they already play.

For now, it’s too early to tell whether the degree of separation from the App Store will actually alienate some customers. Tapjoy, however, assures us this new venture is not in violation of Apple’s policies.

After the Tuesday launch, the company’s website will no longer be its business-to-business format, but a customer portal (shown right) for those wanting access to the web app. We’ll have more information after the launch.

Filed under: games, mobile

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iPhone 4S owners report phantom battery draining

Posted: 28 Oct 2011 04:00 PM PDT

If you missed out on the initial shipment of the iPhone 4S, you may want to count yourself lucky.

Apple engineers are reportedly contacting new iPhone 4S customers to collect more information about a possible defect in the device’s battery, reports the Guardian.

Some customers (including VentureBeat’s very own Devindra Hardawar) are reporting the phone’s battery life will randomly and dramatically decrease — even when the phone isn’t in constant use. For instance, people are doing things like leaving their phones on a bedside table over night at full charge, only to wake up to find that the device is completely dead (or devoid of battery power).

According to the Guardian report, Apple engineers have asked some iPhone 4S customers to install a monitoring program on the device so that the company can better diagnose the problem.

There are a number of possible causes for the accelerated power drain from the iPhone 4S’ battery. The updated phone features a more powerful A5 dual-core processor, which enables it to perform a number of power-intensive tasks that weren’t possible on the previous phone model. Also, some of the Apple help message boards have suggested that a person could have corrupted contacts that were imported from MobileMe, iCloud or Google.

The 4S already has an unimpressive standby time (the total amount of time the device can stay powered when inactive) of 200 hours. That’s 100 hours less standby time than the iPhone 4, and 50 less than the first generation iPhone.

For now, Apple hasn’t determined exactly what’s causing the power drain, and until it does, it cannot come up with a definitive solution.

Have you experienced phantom power draining on your new iPhone 4S? Let us know in the comments.

Filed under: mobile, VentureBeat

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Hulu signs TV content deal with the CW

Posted: 28 Oct 2011 02:47 PM PDT

supernatural, CWVideo streaming site Hulu has signed an agreement to carry TV shows from the CW network the day after they air, the company announced today.

The CW, which is jointly owned by CBS Corp. and Time Warner, airs television shows aimed at a young, mostly female crowd (because the male demographic is embarrassed to admit it likes Gossip Girl). Its lineup of programs includes Supernatural, Gossip Girl, Vampire Diaries, Nikita and America’s Next Top Model.

The deal is a five-year licensing agreement that allows Hulu to stream nine CW programs to its free, ad-supported video service. Each program’s most recent episode will appear the day after it broadcasts on TV for all Hulu Plus subscribers, the company’s premium $8 per month subscription service. Free user accounts will have to wait eight days after the program airs on TV before they can watch it, which is exactly the same deal Fox made when it recently added its content to Hulu.

And like many of Hulu’s other show offerings, the last five episodes of those programs will be available to view in its library. The programs will also be available for viewing on multiple platforms, such as televisions, set-top boxes and mobile devices.

“The CW's serialized dramas and reality series are precisely the kind of shows we aggressively pursue for our service — the kind of shows that attract a young, engaged, and savvy fan base . . . and that make that fan base care deeply,” says Hulu SVP of Content and Distribution Andy Forssell in a blog post about the announcement.

Hulu’s core user base skews younger, so I think the addition of CW content is certainly a big win for the company. Hulu now has current content from five of the top six TV networks in the country (ABC, The CW, FOX, NBC, and Univision).

In related news, Netflix also signed a content agreement with the CW to air the TV network’s programing on its Watch Instantly streaming service. But unlike Hulu, Netflix doesn’t get access to any of the CW programs’ most current season content until the premier of the following season.

Filed under: media, VentureBeat

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Google Propeller and Yahoo Livestand launch to intensify tablet reader battle

Posted: 28 Oct 2011 02:35 PM PDT

The tablet reader battle is going to get a whole lot more intense next week, when tablet news magazines Google Propeller and  Yahoo Livestand launch to take on incumbent Flipboard.

Possible names for the Google reader project include “Currents,” reports AllThingsD, indicating that the Google tablet reader, built in HTML 5, may follow the launch of Yahoo’s Livestand.

According to the Livestand launch page, ”Livestand is a digital newsstand that's always fresh and effortlessly personalized. Sit back and enjoy the news, entertainment, and local information you love, right on your tablet. The more you use it, the more it gets to know you.” Yahoo is touting the reader as a way for content publishers to reach its massive audience. Google is likely selling publishers on similar merits, though details of the project are harder to combe by.

The tablet readers from two of the Internet’s largest technology companies has the potential to disrupt a landscape that has previously been dominated by small, nimble companies such as Flipboard and Pulse. Google previously tried to buy Flipboard, which was valued at more than $200 million in April, which is still chump change for the search giant.

Filed under: media, mobile, VentureBeat

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RentAStudent connects startups with hungry, eager students (exclusive)

Posted: 28 Oct 2011 02:29 PM PDT

rentastudent-morganStartup RentAStudent has a lofty goal: to be a Craigslist-like service that connects startups and small businesses with talented students for one-time projects.

“A lot of businesses are struggling now to get all the work they need done with small budgets, and a lot of students are looking for ways to get exposure.” RentAStudent CEO Morgan Dierstein told VentureBeat. “We help both parties connect.”

RentAStudent’s purpose is to connect students and businesses for any imaginable project. Companies that may not be able to afford established freelancers, but are willing to take a shot with a college student, are the big winners here, especially in this tight economy. Students are helped because taking on a single project is easier than signing up for an internship and there’s money in it.

The company makes money by taking a 15 percent cut of each transaction. Dierstein said that it’s a slightly higher cut than some competitors, but said it’s worth it because RentAStudent pre-screens the students and companies offering projects. Because there is more accountability, Dierstein argues both sides are both more likely to be happy with the results of the project.

“Companies don’t want to work with complete strangers, so we help them get to know their prospective student workers,” Dierstein said.

Dierstein (pictured) first came up with idea for the company in 2006 while he was a college student in Los Angeles, looking for ways to make money. The idea intensified in 2009 when he and his wife were unsuccessfully looking for jobs and realized how strapped businesses were for cash as well.

RentAStudent officially launched in France — Dierstein’s home country — in January, but the team just made the site available in the U.S. this month. Dierstein said the company has taken in more than $40,000 in revenues this year and with the U.S. launch added in, he thinks the number could continue to grow considerably. The site has taken off mostly in France and has signed up more than 1,000 screened students, but now Dierstein and one other employee have set up shop in New York to get the word out.

At present, RentAStudent is self-funded, but Dierstein is using his company’s new placement to talk with VC firms and attract some essential funds to help the company grow and market itself.

“It was difficult to find funding in France,” Dierstein said. “I’m not sure if it’s cultural or strictly about money, but if you’re a startup, you’re more likely to find help in the U.S.”

Filed under: VentureBeat

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The female tech CEO: rising trend or exception to the rule? (video)

Posted: 28 Oct 2011 01:48 PM PDT

This week, IBM named its first-ever female CEO, Virginia Rometty.

In an industry that historically lacks gender balance, this move struck the VentureBeat staffers, including publisher Alicia Saribalis, as momentous.

But in reflecting on the events of the day, we also pondered whether the female tech CEO presiding over an established company (examples also include Meg Whitman and the gone-but-not-forgotten Carol Bartz) was an anomaly attributable to the extraordinary moxie and hard work of a few individuals, or a rising trend whose day had finally come. Are we, the technology industry, starting to see women more fairly, or are these women ahead-of-their-time enigmas?

Outside the tech sphere, we also noted the New York Times’ appointment of its first-ever female executive editor, Jill Abramson.

In the end, we all agreed that while diverse teams produce better results, we’ll all be glad when ladies who lead are no longer headline-making news, but rather the norm.

Filed under: video

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The basics of founder liquidity in venture financings

Posted: 28 Oct 2011 01:31 PM PDT

In today's funding environment, hot companies are gaining the upper hand in negotiating deal terms that would have been unheard of a few years ago. One such term we've seen recently in venture deals is partial liquidity to founders.

Many investors have come to recognize the benefit of reducing founders' personal finance pressures before the "big exit" to free them up to focus on building bigger and better companies over the long-term.

Interim founder liquidity is achieved in two primary ways (usually in conjunction with a preferred stock financing):

Founder Share Redemption: Redemption of a portion of a founder's shares by the company, using proceeds from the preferred stock investment to fund the redemption.

Direct Sale: Direct sale of a portion of the founder's shares to investors as part of the preferred equity round.

Founder share redemption

In a founder share redemption, investors invest more money in the company than is needed to fund operations. The additional cash is used to buy back a portion of the founder's shares, typically at a negotiated premium to the current price of the common stock. Here are some issues to consider with this approach.

Corporate governance: For a company to lawfully redeem shares, it must first comply with corporate laws concerning shareholder distributions. State laws have specific restrictions relating to corporate solvency, corporate waste and other fiduciary issues. Boards of directors often determine that companies' interests are well-served by retaining founders though a liquidity incentive, but boards should always consider these issues carefully.

Anti-dilutive effects: When a company repurchases founder shares, the total number of outstanding shares decreases, leaving existing shareholders with a marginally larger ownership percentage in the company.

Tax reporting: Founders and the company must take a tax reporting position with respect to the share redemption. Depending on the redemption price, there may be a discrepancy between the fair market value (FMV) of the shares as determined for option granting purposes (discussed below) and the redemption price. In some share redemptions, any proceeds above the then-current FMV of the common stock are treated as compensation and taxed at ordinary income rates. Other times, the premium paid for the founder shares is treated as capital gains, recognizing that this approach may have more of an impact on the company's common stock valuation after the redemption. Founders should consult with their own tax advisors prior to the redemption to ensure appropriate tax reporting.

Direct Sale

In a direct sale, investors agree to purchase a portion of a founder's shares directly from the founder in addition to purchasing preferred stock from the company. Investors typically disfavor this method because they end up holding common stock, which lacks preferential rights. However, for companies with leverage to dictate structure, buying common stock may be the only way for the investor to acquire more equity. Here are the issues to consider with a direct sale.

Waivers and consents: If a company has previously taken in venture capital, its financing documents will typically require consent or waiver from shareholders with rights of first refusal and co-sale.

Fewer governance issues: Since a direct sale occurs directly between the investors and the founder, the company bypasses governance issues concerning insolvency, corporate waste and other fiduciary concerns.

Tax reporting: Generally, the same tax issues mentioned above apply.

Option pricing

Companies and investors often struggle with how to price shares in a founder liquidity transaction. While this exercise is more art than science, we've seen investors apply a 10 to 25 percent discount to the preferred stock price, which usually results in a much higher price than the current option strike price. Companies won't want to peg their option FMV to the price at which founder stock was purchased, since the high price could "blow" option pricing and create challenges incentivizing employees.

One way to mitigate this impact is to characterize a portion of the amount paid to the founders as "compensation" income. However, founders may find this approach undesirable. To address this, we've seen companies obtain an appraisal of their common stock by an independent valuation firm immediately after the transactions that takes into account the founder liquidity event but does not rely solely on that price for valuation purposes.

Valuation firms often view the founder liquidation event as a "one-off" transaction where the company (or the investor) agreed to pay a premium for the founder shares. The valuation analysis may also distinguish the event if the founder sold a controlling stake. These arguments, while prevalent, are not immune to challenge by the IRS.

How much founder liquidity?

Typically between $500,000 to $2,500,000 depending on the size of the financing, how long the company has been in existence and its growth trajectory. The liquidity should be just enough to alleviate founders' financial pressures but not enough to de-motivate them.

More founders, more problems

While it is customary to see interim liquidity reserved for a small number of core founders, companies may be tempted to expand the group to share the wealth. U.S. securities laws — specifically the tender offer rules — come into play when the founder group grows beyond a handful of people and may trigger a host of unanticipated timing and disclosure compliance requirements.

Companies and founders are well-advised to engage skilled legal counsel to help them navigate the pros, cons and other considerations of founder liquidity transactions.

Caine Moss is a partner at Goodwin Procter LLP where he specializes in representing technology companies and handles venture capital financing, M+A and public offering transactions. Alon Rotem, an associate at Goodwin Procter, assisted in drafting this article.

[Image via Christos Georghiou/Shutterstock]

Filed under: Entrepreneur Corner, VentureBeat

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iPhone 4S jailbroken for first time, “hurdles” remain for public release

Posted: 28 Oct 2011 01:02 PM PDT


A member of the infamous iPhone Dev-Team, a group of hackers, has found a way to jailbreak the Apple iPhone 4S for the first time since its release two weeks ago.

Jailbreaking your iPhone opens the door to loading unapproved applications, and to using the phone on additional carriers. Not surprisingly, Apple hates its devices being jailbroken and used in unintended ways, so the company regularly issues operating system updates that make it harder to jailbreak.

MuscleNerd, the lead developer for the iPhone Dev-Team, posted two screenshots on Twitter of a preliminary jailbreak he completed on the 4S. Unfortunately for iPhone 4S owners hoping to break free, the software isn’t ready for a public release. MuscleNerd says there is “lots of work left” and that “huge missing pieces prevent public release.” On YouTube he added: “Lots of hurdles left, no ETAs.”

While this news won’t help you get your iPhone 4S jailbroken today, it does mean the Dev-Team could have something ready in the near future. The Dev-Team generally works quickly to find new hacks for each major Apple product release. Rest assured that we will let you know when the hacker group releases its solution to the public.

Below, you can watch a video of an iPad 2 running iOS 5 that has been jailbroken by MuscleNerd:

Filed under: mobile

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Samsung’s new phones will have flexible screens

Posted: 28 Oct 2011 12:10 PM PDT

Samsung‘s new mobile device lineup will feature flexible screens starting in 2012, the company announced today.

In its quarterly earnings call, Samsung’s vice president of investor relations, Robert Yi, told investors, analysts and press, “The flexible display we are looking to introduce sometime in 2012, hopefully the earlier part. The application probably will start from the handset side.”

After flexible-screen mobile phones roll out, the company plans to introduce the same technology for tablets and other devices.

In January 2011, Samsung purchased Liquivista, a strategic acquisition that will allow it to produce the kinds of displays that were announced today. Liquivista made electrowetting display technology, which is used to create mobile and other consumer electronic displays that are bright, low-power, flexible and transparent.

Flexible screen technology was also a focus of Samsung’s in March, when Yongsuk Choi, director of Samsung Mobile Display, gave an overview of the company’s future mobile device plans. At that time, Choi said most of the flexible-display technology Samsung was working on was still in very early stages.

Flexible displays have been on the fringes of up-and-coming mobile technologies for some time. For example, we saw a bendable e-reader from Plastic Logic back in 2008.

More recently, Sony, in particular, has shown some interesting work in the field, demonstrating its first flexible display at CES in early 2009 and showing off advanced, thinner, more flexible displays just last year.

Still, flexible screens aren’t something we’re seeing on the mass market yet; we wonder if consumers will warm to the idea when Samsung takes the wraps off these new devices.

Samsung recently surpassed Apple as the top smartphone manufacturer, shipping 27.8 million smartphones last quarter. Altogether, Samsung’s current share of the smartphone market is 23.8 percent.

Filed under: mobile

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Groupon’s tricky S-1 math

Posted: 28 Oct 2011 11:18 AM PDT

[Editor's note: This story is republished with permission by Rocky Agrawal. It originally ran yesterday on his blog, reDesign.]

Quick: How many people bought a Groupon in the third quarter?

The obvious, easy answer based on the latest S-1 is 29.5 million. That's what Reuters wrote Wednesday. (They rounded up to 30 million.) But that number is wrong.
What Groupon reports in their S-1 (in their quarterly results) is how many people have ever bought a Groupon. Because it is listed in the quarterly section, someone who is not deeply studying the S-1 would assume that that’s how many were sold in the quarter. Groupon intermingles quarterly results and cumulative results in the same column.

This is just one of the many tricks used by Groupon to hide data.

This method of reporting would hide sequential declines in actual purchasers of Groupon during the quarter. It's possible that fewer people purchased a Groupon during the third quarter than the second quarter. But we don't know, because Groupon doesn't tell us.

At times, reading the Groupon S-1 is like solving a GMAT data sufficiency problem. Do I have enough data points to find this information?

So how many people did actually purchase Groupons during 3Q?

  1. We know that the number of people who have ever purchased Groupons increased by 6.4 million from 2Q to 3Q. So at least 6.4 million people purchased Groupons in 3Q. That would imply that no one who had ever purchased a Groupon before purchased one in 3Q. So that number is clearly too low.
  2. We know that as of 3Q, 29.5 million had ever purchased a Groupon. If everyone who had ever purchased a Groupon bought one in 3Q, that would mean 29.5 million purchased one. That's the number Reuters reported. Clearly that number is too high.
  3. We know that between 2Q and 3Q the number of repeat purchasers increased by 4 million. These are people who had purchased only one Groupon before and then purchased another one, making them a repeat purchaser.

Putting all that together, if you take the number of people who were new purchasers of Groupons (6.4 million) and add in the increase in the number of repeat purchasers (4 million), you end up with 10.4 million.
That number is also high because new customers who bought more than one Groupon in 3Q would be counted twice. We don't know how many of those there were.

But it's low because some proportion of people who were already repeat customers in 2Q would also have been repeat customers in 3Q. If we assume that 60% of repeat customers in 2Q bought in 3Q, that's another 7.2 million. (We don't know what that proportion is; this is an estimate.) Adding that in, we get 17.6 million.

Is that number exactly right? No, but it's a better number than the 29.5 million. (The biggest variable is what proportion of 2Q repeat customers repeated in 3Q.)

Groupon could easily report the number of customers who purchased a Groupon in a given quarter. So why doesn't it? It's material information. The fact that the company goes out of its way to hide information like this should be a big red flag.

Rocky Agrawal is an analyst focused on the intersection of local, social and mobile. He is a principal analyst at reDesign mobile. Previously, he launched local and mobile products for Microsoft and AOL. He blogs at http://blog.agrawals.org and tweets at @rakeshlobster.

Filed under: deals, social, VentureBeat

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Video: A deeper look at the $35 Android tablet shows that it’s usable, mostly

Posted: 28 Oct 2011 11:12 AM PDT

Aakash Android tablet photo, showing startup screen with icons

An Android tablet that sells for just $35 seems like an irresistible bargain. At that price, you might even be willing to put up with some serious tradeoffs. But does the Aakash tablet work well enough to be useful?

We were able to get on our hands on this device twice. The first day we had limited time with it, and wrote an overview, India's $35 Aakash Android tablet lands in America, based on our initial impressions. The next day we were allowed a bit more time with it, and we came a little more prepared to put it through its paces. A video of our more detailed look is below.

Vivek Wadhwa, a visiting professor at the University of California at Berkeley and Duke, gave us access to the device, which came from Kapil Sibal, the Indian minister of human resources and development, who is behind this project. The goal is to build 10 to 20 million of these devices and get them out to students. The important point to remember here is that this device to targeted to the huge population of poor people who live in the numerous villages in India where access to technology is limited.


As mentioned in the previous article, the device is painfully slow. Using a 366 MHz Connexan processor to plow through Android 2.2 (Froyo) is not exactly a fair fight. You can tell by the device’s inability to handle heavy 2D graphic tasks, most notably trying to scroll through a screen of icons. We also had a very difficult time with the web browser, however this was the stock browser that comes with Froyo. We wanted to try downloading more stripped down and faster browsers, but alas Android market and GetJar were not installed in the test unit. So given the limitations, we did the best we could, killing processes in the background that did not need to be running and trying very hard to be patient.

We put ourselves in the shoes of students when we tested this device again. What, as a student do you really need? You need to read, write, perhaps do arithmetic, and in today’s world, watch educational videos or live streams.

Word processing

We started with writing. To do this properly, we need to be able to type.

We opened Notepad so that we could try connecting a keyboard to the USB port. And in a few seconds, we were able to type easily. This made all the difference in the world.

As the device stands now (and granted, it’s a beta device with what seems to be an un-optimized installation of Froyo) it feels slow to anyone who has used the latest batch of tablets on the market, such at the iPad the Xoom. But with a USB keyboard, the device became a bit more usable.

Reading and opening files

To read, we need access to digital books.

First we loaded Aldiko, an e-book reader. We opened Sun Tzu’s Art of War. It took a long time to load the app, perhaps 8 seconds. Loading the book itself took only a few seconds, and once it was loaded, it was easy to use and responsive — almost Kindle-like. The device is light and it was easy to read and easy to turn pages.

However, not all books will be available online and not everyone will have access to Wi-Fi or 3G (even though it is quite cheap in India). We need to be able to load books and other documents from a memory stick. This is where the second USB port comes into play. We grabbed a USB key and tried to load a few documents, with immediate success. We opened Word docs, PowerPoint, PDFs and even an MP4. Documents To Go was used to handle most of the viewing, and although the loading and scrolling was slow, it was still usable.

Overall performance

So our conclusion is that as education device that only needs to be “good enough,” this tablet is pretty close. With some tweaks to the OS to increase the speed and reduce the memory footprint, and keeping the price point under $50 per unit, I think Kapil Sibal may have achieved what he and his team has set out to do.

Enough talk. Lets have a look at the Videos. The first video is from the first day where we tested the web browser.

The second video looks more at creating and reading documents.

Filed under: mobile

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Klout raising new $30M round at a $200M valuation

Posted: 28 Oct 2011 10:40 AM PDT

klout logoKlout, the startup best known for its ability to measure a person's online influence, might be raising a new, third round of investment that would significantly add to the company’s total funding and valuation.

Klout works by measuring a person's activity on a variety of social networks such as Twitter, Facebook LinkedIn Google+ and others. Based on that individual's interaction within those social networks, Klout calculates the true reach of that person's communications and issues them a 1 to 100 Klout score. The company also launched new Klout Topic Pages that show all the activity from the greatest influencers about a particular subject.

A company spokesperson told VentureBeat it doesn’t comment on rumors. However, the new round, possibly led by Kleiner Perkins with participation from IVP, might be as high as $30 million at a $200 million valuation, according to a report from Business Insider.

Founded in August 2008, the San Francisco-based company previously raised an initial $1.5 million round, followed by a second $8.5 million round in January 2011. The company has a total of $11 million in funding to date from Kleiner, Greycroft Partners, ff Asset Management and others.

Filed under: deals, social, VentureBeat

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HP’s MacBook Air competitor coming to market soon, says exec

Posted: 28 Oct 2011 10:30 AM PDT

HP will soon be manufacturing Ultrabooks, the super-light, super-slim computers that will compete with Apple’s MacBook Air.

In the wake of the joyous news that HP is not killing off its PC division, Todd Bradley, executive vice president of HP’s Personal Systems Group said in a conference call today, “We’re very focused on having a suite in that ultramobile space, and you’ll see that very soon.”

The Ultrabook space is heating up; HP is actually one of the last major manufacturers to hop on this bandwagon.

After Acer’s founder called the skinny notebooks a “fad”, Acer itself unveiled the Aspire S3 Ultrabook, which started selling this month. The device has a 13.3-inch screen and weighs in at under 3 pounds.

Toshiba also has skin in the game. The company debuted its Portege Z830 series laptops last month. These notebooks have a 13.3-inch screen, are 0.63 inches thick and weigh less than 2.5 pounds.

And earlier this month, Asus announced its new Zenbook line in 11-inch and 13-inch models weighing 2.4 pounds and 2.9 pounds, respectively.

All launched Ultrabooks predictably undercut the MacBook Air on price, and most have at least some superior features, such as the Zenbook’s USB 3.0 ports, which are much faster than the USB 2.0 ports found on Apple’s Air.

Intel has stated that it’s funneling $300 million into developing an Ultrabook, as well.

There has been some concern that HP would stop making PCs or sell off its PC division. However, the company stated yesterday that PCs would be staying.

"HP objectively evaluated the strategic, financial and operational impact of spinning off PSG. It's clear after our analysis that keeping [personal computing group] within HP is right for customers and partners, right for shareholders and right for employees," said chief executive Meg Whitman in a statement.

Filed under: VentureBeat

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With a facelift and Android apps, Google TV may finally live up to its potential

Posted: 28 Oct 2011 10:22 AM PDT

A year after Google TV’s middling launch, Google is finally ready to take another stab at its ambitious smart TV platform.

The company announced today that the long-awaited GTV update, which brings with it a revamped interface, Android apps, and more, will start to roll out next week.

I was a bigger fan than most of Google TV — I’m actually still using it daily — but the platform’s problems have become increasingly grating over the last year. It’s slow, the interface is ugly and hard to use at times, and it has a surprisingly small number of available apps (especially compared to other TV platforms from Samsung, Vizio, and others). The lack of Hulu support also burns, especially since Hulu Plus apps are available on the Xbox 360, PlayStation 3, and elsewhere.

Still, I’m a believer in Google TV’s potential to reshape the way we watch television. With this latest update, GTV’s biggest one yet, it looks like my hopes for the platform are one step closer to reality.

The update brings Android 3.1 Honeycomb to Google TV (although by this point, Android 4.0 is all the rage), which alone should make the platform faster and more stable. GTV will also finally get access to the Android Market — though Google says apps that require touchscreens, GPS, and telephone access won’t show up. That means there will be a small number of apps available at the start (Google says over 50 developers have apps ready to go), but it’s still an improvement over the the current handful of apps on GTV. One of the new apps is AOL HD, which is made up of HD content from AOL sites like Engadget and the Huffington Post.

Google TV’s interface is now much smoother and less intrusive than its first iteration. The home screen is now customizable and relies on icons, instead of archaic text menus. There’s also a new “TV and Movies” app that makes it easy to find content across cable or satellite, Netflix, YouTube, Amazon, and other sources. It also takes advantage of Google TV’s recommendations engine to suggest new content.

The YouTube experience on Google TV also appears to be vastly improved. Google unveiled its gorgeous HTML5-powered YouTube Leanback interface last year, but it was always a bit slow on Google TV. The company says it now has a YouTube app built specifically for GTV, which should be faster to navigate and should better handle high-definition videos.

The Google TV update will begin to roll out to Sony GTV televisions and its Internet TV Blu-ray player next week, while the Logitech Revue box will receive it later. The company also hinted that we’ll see even more updates over the next few months, as well as new devices sporting better hardware.

Filed under: media, VentureBeat

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