Today, on the This Week in Startups News Panel, we welcomed serial entrepreneur Paige Craig, our own Tyler Crowley and Launch’s Kirin Kalia to discuss Google’s driverless cars, Apple’s maps app–and Paige gives a candid explanation of what went wrong with Betterworks.
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Jason: Hey everybody, hey everybody sorry for the late start. It’s ThisWeekIn Startups. We’ve got an amazing program for you. It’s the News Round Table, Paige Craig, Tyler Crowley and Kirin Kalia are all here. Stick with us it’s going to be an amazing program.
Roll Intro Credits
Jason: Hey everybody welcome back to ThisWeekIn Startups, the show where you learn about entrepreneurship putting a dent in the universe and basically making products and services that are a little bit better than what came before, hopefully a lot better. We’ve got an amazing news round table today. You know once a week we do the news, and there’s a lot of news in the startup space from Google, Facebook, Twilio, Yahoo and a lot of other folks.
Although it’s “ThisWeekIn Startups” a lot of the time we talk about the big companies because they have a big impact on the startups, so it will be 50/50 startups and big companies. And of course we couldn’t do the program without the support of great partners and I just found out today from Jason Demant, who has been an amazing executive here, you know Jason started out running the Korea, I think he did an AskJason call one time, he pitched his startup “Unanchor.com” and then he did the Korea meetup in Seoul, and then he became our sort of director of business development, and boy has he been tearing it up! The show is sold out until January! So if you wanted to buy an ad for the program, it’s like “talk to us in 2013”! The program is doing fantastic in that way.
What’s really great is that we get to pick who we want our partners to be. One of those partners is SourceBits. They are the leader in mobile app and cloud development. They do a great job. They do design led engineering, and what that means is that they make beautiful stuff for folks like Hersheys, Coke, GE and even Sequioa Capital, that’s how I ran into the founders. Here’s one of the things they built, it’s called “E-highlighter”, I’m pulling it up. What an interesting app. You take a book, you take a picture from a book, and then you can highlight so if I take my phone I can grab a photo from any book, and so I’ll just pull a photo from my photo album. Then I say “oh I want to highlight something” so I pick what I want to highlight, the beginning and the end of it, and I save it along with the page I’m on. Now I’ve got it here set into my notebook with all of the annotations from the book. Really interesting way to convert something you see in a library or a bookstore and get it into this digital format. Very creative design, and it’s something they built for somebody. If you’re falling behind on your mobile development you’re basically falling behind in your business. Half the activity on the internet is now coming from mobile devices and thats going to become 2/3rds. So if you need a partner to help you catch up the best partner I can recommend is SourceBits, they do a great job. If you do a meeting with them you’ll get a 15 minute meeting with me, and if you end up using SourceBits we’ll demo your product here on the program. So go ahead and email SourceBits at “email@example.com” for more information and everybody thank @SourceBits on their Twitter account.
With me this week is Paige Craig a serial entrepreneur and angel investor, welcome back to the program. You look tanned and well rested, took a little vacation?
Paige: Took a long vacation, and I checked out the Berlin startup scene. Killer, if I was going to invest in Europe I’d be in Berlin.
Jason: It’s amazing, everybody is moving there, and it’s not just Germans is it?
Paige: No, there’s folks from London, folks from Northern Europe, even Americans are moving to Berlin.
Jason: And Tyler Crowley is back with us. Tyler, how was Sweden?
Jason: And are you married? It’s a speculation! You want to make an announcement?
Paige: He had to donate a kidney to his girlfriend though!
Jason: What’s the story? Nothing to announce?
Tyler: No nothing to announce. The trip was awesome. I was gone for two and a half weeks.
Jason: And you were gone also in the summer for a month.
Tyler: And a few weeks before that.
Jason: Awesome! And congratulations on the baby, I hope it’s a boy, or a girl. I don’t know what is going on in Tyler’s personal life but something is going on! He’s showing me select photos here and there, and it seems to be a pretty good situation based on what I’m seeing in the iPhone. Are you going to get the iPhone 5 yet?
Tyler: I just got back here and they were all gone.
Jason: See! You leave and then you miss out on a generation. Kirin Kalia is here, the managing editor of the launch ticker, which is surging. How’s everything going?
Kirin: It’s going great.
Jason: The blue shirt looks great on camera, don’t wear black because then you’ll disappear into the background.
Kirin: I would never do that.
Jason: So we’ve got a lot of news going on, why don’t you tell us what the first story is Kirin.
Kirin: Well the most interesting story this week is probably that California is going to allow driverless cars. We all know this is really about Google because they’ve famously tested that already. Now the cars are legal, but a licensed driver must be at the wheel and be able to take over if there is a malfunction. Sergey Brin was there to observe the signing of this into law with Governor Jerry Brown and he was wearing his Google Glass, and he said they hoped to have employees testing within the year and on the road a few years after that. Where does the self driving car rank in Google’s list of achievements and do you actually want to drive one?
Jason: Well as I said in the launch ticker this cannot come soon enough for California because we already have people in self-driving cars. I drive down the highway and I see people literally texting with two hands, or people are screwing around on their web browsers. Obviously this is a fantastic thing, my question is if the driver has to be ready to take over, does this mean they have to be watching the road? What if they have a newspaper in front of their face? Could they be sleeping? Did we get clarification on that?
Kirin: Not yet.
Jason: Okay. So we’re trying to get clarification on what it means “to be ready to take over”. The reason Google is doing this is because there is millions of hours wasted during car travel, so what are people going to do if they don’t have to steer their car, they’re going to be doing searches, and local is a huge market for advertising, maybe they could be looking at the restaurants around them. It’s going to be a major recapture of time that people are wasting in traffic, and it’s obviously going to be safer. There is no reason to believe that this will be more dangerous than what people are currently doing which is distracted driving. So I’m a huge fan of it. I don’t see any reasons why it can’t work technically, there will be bumps in the road so to speak, but the bumps won’t be fatalities or anything like that. What do you think Paige?
Paige: I’m a big fan, but I think what everybody is missing is it’s not about consumers. You just mentioned “Local”. What’s really interesting here is that this is as important as tabulating machines, and abacuses because local is about getting goods, so screw the consumer. Imagine the day that the vehicle can move a shipment from Amazon to you and there is no driver to pay, this changes the entire local delivery business. This is massive transformation. It’s great that I can go out and get drunk, and my car is going to get me home safe.
Jason: Just for that reason they could make it available for people who are drunk.
Paige: You’re going to be able to get a book delivered, or just everything, planes, boats, ships.
Jason: So you think this is a stepping stone to driverless cars?
Paige: I think it’s about computers navigating.
Jason: In order to get that benefit there would need to be NO driver in the car. You’re saying this is a way point to that?
Jason: Interesting I didn’t really think about that.
Tyler: If there’s no driver in that car you could drive the car off the road and take the goods.
Jason: You mean hi-jack it?
Tyler: Ya, if there is an Amazon truck going with a shipment.
Jason: Ya that would be the new way to boost goods. Ya we should write a science fiction movie about that, it could happen. Listen there are going to be so many people fighting this, and the interesting this is the people who are going to fight this are the old people who shouldn’t have licenses, and their the ones who should be using this. The biggest complaint is going to come from 80yr olds.
Paige: Everyone is for it. Drunk drivers support it, trucking companies support it. East Texas is going to lose a lot of trucking jobs, but realize if you’re making cars you’re going to sell 3 times as many vehicles because of driverless vehicles.
Tyler: There’s the other thing which is that you won’t need as many vehicles on the road if you can have 100% utilization of the vehicles.
Jason: Oh right, because they can be going at night to drop things off and they could drive closer together.
Tyler: Same thing with Paige’s point that with the regulations right now truckers can only drive 10 hours at a time whereas this thing would go all night.
Jason: You know what would be more interesting is if we had those little speeder bikes that have the gyroscopes in them that don’t fall over. They could just take the product, and put it into the little slot in the bike and the bike goes to race the bike to you. Interesting. If they’re building this to screw with Amazon, that’s a pretty long plan. That’s like a 20 year plan. You might as well go into a time machine to go back and kill Amazon.
Paige: It’s going to be a platform. I mean, it’s probably going to be an open platform.
Tyler: And if it’s Google it’s ad supported.
Jason: This is going to really help maps and all of that stuff. I’m happy it’s making progress. I think it’s awesome. Just watching it drive through San Francisco and stopping for pedestrians is insane. These things are better drivers than humans.
Tyler: That’s why it passed in California.
Jason: No, it passed because it’s Jerry Brown and he gets huge donations from tech people.
Tyler: Sure no question there, but also statistically it’s safer than a human driver.
Jason: It’s gotta be safer than humans. Then the question is, would you want an airplane that’s completely pilotless?
Tyler: Apparently they are already.
Jason: Well remember the Air France disaster. Where the guy pulled up and then slowed down, when he was supposed to push down. Then the pilot was off with his mistress or something. What happened with these guys was something went wrong with their speed indicator or something.
Kirin: So how old would you need to be to theoretically take over a driverless car?
Jason: Of course you’d need to be of age, you’re not going to put a 12yr old in them.
Tyler: But they’ve put blind people in them.
Jason: Ya that is interesting. I guess during the beta you’re going to have to be able to take over, but after millions of miles they’ll be able to show statistically that it’s safer.
Paige: And no high speed chases.
Jason: I want my computer to be able to navigate a high speed chase so I can get away.
Paige: But it’s Google, they’ll be able to just turn your car off.
Jason: How great would be if it’s an open API so hackers could program it so it’s able to get away from cops.
Tyler: But he brings up a great question, can the authorities get access to the break pedal to stop you?
Jason: What’s going to happen is there is going to be a lobby. You know how we have the NRA, we’re going to have a car driving lobby where in 20 years from now people are going to not be able to drive cars. You’ll have people on the left who’ll say people should not be allowed to drive cars. Computers are better drivers than people. Anyway, congratulations to Google, congratulations to my pal Sergey. Is Apple working on this do you think?
Paige: Well Apple is busy with Maps right.
Jason: I emailed Sergey and I said this is the most brilliant marketing strategy, put the products out when they’re in hyper alpha, so that you get credit before Apple who only puts out the most polished version. Then Google gets the credit because they were first. Okay, next story.
Kirin: Since Paige brought up the Google Maps, that’s probably a good one to go to. We all know that Apple’s own maps apps had a rough beginning, and now Google is reportedly developing their own maps app for iOS, supposedly will be done before the end of the year. Google thought that their app would stay on the phone because the contract wasn’t up yet, but then Apple removed it because they said Google didn’t want to do voice driven directions. It’s not clear where things stand, but clearly it is good for Google to do their own iOS maps app. So should Google have given Apple what they wanted, or how much does it matter if we have to wait and what does it mean for the maps marketplace in the meantime?
Jason: Do you have the iPhone 5?
Jason: Well I have to say it’s quite nice, I’m enjoying the maps and if you judged Google Maps early on you would have found all this stuff. There’s a couple things going on, first of all people are piling on because finally Apple did something wrong. When Apple makes a mistake, because everything else they do is so beautiful, everybody piles on. This is so minor, 9/10 problems that I see is the flyover 3D stuff. I like it, these roads look like they’d be fun to drive. Now there is some stuff that is glaring, like if Hong Kong is in the wrong place on the map that’s a problem. So that’s number one, number two Google is great at building services over a long period of time. They iterate like crazy, so the expectation of Google products is it’s not going to be perfect at the beginning. Apple doesn’t really build services, they’re not really good at this stuff. But Google wouldn’t give them turn by turn, which was a huge mistake. Google was thinking that Apple wouldn’t cut the deal, but they got it wrong and Apple cut them. But the turn by turn navigation on the Apple maps is really good. I just put it in my pocket and I don’t even need to look at it it just tells me when to turn. And the iPhone screen is so big it’s as big as the TomTom unit I had before.
Kirin: Well David Pogue in his review pointed out that the first time he used the Apple maps he ended up in a suburban cul-de-sac instead of where he was supposed to go.
Jason: Well that’s because he’s a dope, I think he probably made a mistake.
Paige: You won’t need that phone when you’re in a Google Car.
Jason: That’s true! The funny thing, Steve Jobs would say there is no issue. Tim Cook wrote an apology letter. Listen it’s insignificant, they’ll fix it over time, it’s just a slow news week.
Tyler: I also think Apple didn’t really want to do this, they just wanted Google to enable turn-by-turn and they didn’t so they did it on their own.
Jason: That’s what they’re saying, I don’t believe that. I think Apple is going to remove every remnant of Google from the iPhone. And Facebook will have a phone, and maps and a search engine.
Tyler: So why doesn’t Google do turn-by-turn on iOS when they do it on Android?
Jason: I think it was just some mid-level person made a negotiating decision to help differentiate over iPhone. It’s a non-issue though, it’s funny though to see people make it into this huge issue. Really it’s good enough. What I don’t understand though is, why didn’t they leave the Google Maps app there? I get making their own the default, but why remove it completely? This shows its a vindictive move.
Tyler: The next question is will Google make a standalone app, and will Apple let it into their store?
Jason: They have no choice to. They can’t play the anti-trust game of not letting apps into the store because they did that with the browser for a while, and suddenly congressmen are looking into it. Also Tim Cook is trying to make his own version of Apple, and it’s a little less “dickish”. Jobs was a huge dick about these kinds of things.
Kirin: Jason, did you read the old apology letter from Steve about the iPhone price dropping thing 5 years ago. He basically doesn’t apologize until the very end. He said “I was right, it was the right thing to do, by the way I’m sorry we disappointed you”.
Jason: Ya. The bigger issue here is Apple is getting better at making services and things in the cloud. You can laugh at this version but it works 99/100. I’ve restored 3 devices from iCloud, it’s amazing. It just works. Did you see in iPhoto you can make a photo stream and share it with multiple people? I’m not going to be on Path half as much, because what I’m doing there is just trying to share photos of my daughter with my mom.
Kirin: So Jason have you used Passbook?
Jason: No not yet. I’m not sure what the usecase is yet.
Kirin: If you have tickets, or boarding passes or stuff like that.
Jason: It hasn’t come up yet. I haven’t even seen it, I guess part of it is other people book stuff for me so I don’t know. Anyway, next story. Hey Paige, can I ask you about BetterWorks after the break?
Paige: Ya sure.
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Jason: So Paige, BetterWorks was the hottest startup for the last 9 months or so, and now it’s gone. What happened?
Paige: Well pretty much we picked a vision that just didn’t work out. You guys were adopters of it, and so were Tesla and Facebook, we had hundreds of companies, but hundreds of companies doesn’t build a billion dollar company. Cool product, but that last 6 months we asked ourselves can we get past the early adopter phase and build a big company. Tech companies would use it, and some financial services companies would use it, but then we sort of hit a wall, we couldn’t get the older companies to use it. Maybe 1 in 100.
Jason: Maybe too early?
Paige: Maybe too niche of a business. Maybe a great idea for a young team to build a $20-40 million business around, but you know that’s not VCs are interested in, and that’s not what we wanted to do. We had to make this tough call, and we spent about a month thinking about it. We still had half our money in the bank and about $7million signed off from Triple Point that they had to give us, and they’re awesome so we decided there is not a real company here.
Jason: Wow, that’s quite fair of you guys to do that. How did they take it?
Paige: Amazing people. Red Point and Triple Point, amazing people. This is the best time to judge a VC and I’ll tell you why. It’s easy to be nice when things are going well. I set the company on a direction that didn’t have a big market. We spent a year trying to find the market. We built the product, but we couldn’t develop the market. We decided to give the money back.
Jason: What about the employees? Did they feel you might have given up too early?
Paige: We had a really regular communication schedule. People knew, everything was open.
Jason: So they knew. They were relieved. They don’t want to work on a project just out of loyalty if it’s not going to work.
Paige: We didn’t pull out too soon I think. There was this consensus that we were starting to hit a wall. We tried a lot of things to try get passed this wall.
Jason: Do you think these guys would back you again?
Paige: Ya I think so.
Jason: They probably have extra credibility. Better to lose half than all the money. If your choice is to spend another three years to maybe get all the money back, or just cut it it’s better to put that money into the next company.
Paige: Ya, every investor we had involved except one was okay. If you’re an investor you’re going to have some failures.
Jason: Who was the one? Some angel investor?
Paige: Ya he was a minor angel investor, and he wasn’t that involved, and then when he lost half his money he was upset. I can’t say too much.
Jason: Was he a rookie guy?
Paige: Different type of investor.
Jason: Okay, so he’s outside of tech. You can’t have those types of people investing in your company.
Paige: Those types of people are generally the worst when things go bad, but not always. As for everyone else in the company, it looks like everyone else is going to be doing some good things.
Jason: Well listen, if you do something else let me know I’d like to be one of the first angels.
Paige: I’m going to be investing in entrepreneurs for a little while.
Tyler: Well he’s so good at it. If you look at the stuff he did before BetterWorks, holy cow!
Jason: I know, it’s pretty impressive. Who are your top 3?
Paige: Klout is gonna be the Google of the future. I’ve been a big fan of Klout since they had a crappy little app, and I cold called them to get involved. Dwolla is going to kill it. And my third, I’m going to save because I have half a dozen companies in the mix.
Jason: Speaking of which let’s segue into Klout.
Tyler: For the record, the companies that Paige gets involved in, you know how people might ask a CEO who is your best investor, without fail every company that Paige is involved in says he’s their best investor.
Jason: By the way when did you know the business wasn’t going to break out? Was there a moment in time where you had a flutter in your gut and just knew?
Paige: It was qualitative and quantitative. Quantitatively we could see our sales cycle was going longer and longer, and more expensive. The harder we pushed into the market the harder it was getting.
Jason: So you’re measuring how long it took to do a sale
Paige: Ya, and that’s a key thing. As you’re doing this it should get easier and easier, and we didn’t see that. Second thing, when you start to see that qualitative aspect where the people you’re working with no longer have the same “there is no way we can’t win” mentality. That starts to happen when you have tried everything and you see you’re in a cell with no escape.
Jason: Ya so you see the hope is starting to fade.
Paige: Nobody gave up, but people were starting to question if I was insane, is he clueless?
Kirin: Did the possibility of a pivot ever come up?
Paige: It could have, there are always pivots, we considered selling to enterprise in the HR space. But there’s another lesson, selling to HR is tough.
Jason: Let’s go to the Klout story.
Kirin: So Klout got Microsoft to invest and partner with them. You will now see Klout scores in Bing searches. It will be in the people who know section alongside Twitter and Quora. Bing search data will contribute to Klout rankings. It’s not exclusive for either party, and no word on how much Microsoft has invested. So what does this mean for Google, and at some point would it make sense for Microsoft to acquire Klout?
Jason: This is a great question, and we have an investor in the room so there are some things he can’t answer. Why don’t you just tell us what you think the significance of the deal is?
Paige: I think it’s huge. I think it’s like their Facebook deal. I mean, Joe personally went and met with Gates and this has support across the whole organization. They have a joint development team, Microsoft and Klout are actually working together on the speed and algorithms behind there. Joe’s going to get access to all the information out there. The same way that Google was going out and finding out how websites are linking to each other, Klout is doing that for people. What’s more important? Understanding websites or people? We’re in a world where billions and billions of people are coming online so getting Microsoft on there with all of their users and information, they’ve got the trifecta – Facebook, Twitter and Microsoft. What’s next for Klout? And they’re going to keep knocking down posts like that. This is huge.
Jason: It’s a big deal I think. Google is doing it to a certain extent when they put the author in the search results next to a post, more people are going to click on it because they see a person with a photo. And, maybe they say the person who has 700K followers should be higher than the person with 300K followers. Now, that’s just rough follower count, but Klout is doing much more like how much you’re amplified and re-tweeted. We had Sacca on and he was NOT a fan of Klout, he thinks that there is problems with it because it’s changing behavior and that can have unintended consequences. As I’ve said if you just do a bunch of quotes from you know Teddy Roosevelt your Klout score is going to go up everyday, but I think they’ll mitigate that somewhat.
Paige: That’s the nascent days of Google, Google changed people’s behavior with search.
Jason: I wonder if there is a “Klout SEO” industry now?
Paige: There will be.
Jason: Ya there will be, people figuring out how to have more Klout.
Paige: Do you know how big their API is now? How many billions of calls being made?
Jason: Should the scores be public? If you don’t have the score to work off of then you’re blindly trying to improve your Klout, but if you can see it then people can debate it and try to move it up. So in one way it attracts a lot of attention, but in another way it’s like when they gave a page a “Page Rank”.
Paige: It’s a hard call. On the one hand you could say it’s great to know the rank of a page, you can go get your page rank, but that’s not published in sort of a leader format. But the reality is people are very different from web pages. And that score actually drives engagement.
Jason: What I want to do is have a version of Twitter that’s people who are like “40” and above because there is a point at which people are either not active or they’re spam. I’m not meaning it to be elitist, I mean it as in let’s get rid of the noisy people that are obviously fakes.
Paige: Think about your email. When you get an email from somebody pitching you their company, what if their Klout score for tech or investing was below a certain level it just gets killed? What if you get an email about fitness and that person’s score is so low, then you filter them out.
Jason: I already do it now, I have the Klout toolbar, and if I’m doing a Twitter search for let’s say the iPhone 5 just to get opinions. I will look at the Klout score, and if I see someone is a 60, 70 or 80 I do pay more attention and then I’ll click through to see who they are. So it is a way to highlight. I should check my Klout score right now! Hey Kirin, can you put somebody on making my Klout score higher please?
Tyler: I got hit really hard last month actually. This is a tip for everybody, on your birthday a bunch of people are saying happy birthday to you, and my Klout score at the time is a 74. I’m saying thank you, so I’m liking everyone’s comment. Two days later it’s like 61, so part of the thing is you’re liking something that nobody else likes, it takes a real nose dive on your score. So I want to petition Joe.
Jason: Okay, so pull up my Klout. So here’s something interesting, someone put up this great quote from Jim Barksdale, former Netscape CEO, he said “If we have data let’s look at data, if we have opinions let’s go with mine”. So I saw someone had tweeted that and it had a bunch of retweets, so I retweeted it and got a bunch of retweets. But look at this Bing, people searching for my name has increased significantly. I have to say Bing is a better search engine than Google, at least they’re very competitive. Why don’t I use this more?
Tyler: I’ll give Bing credit, they’re better than people realize, and now they’re doing this campaign it’s a “blind search engine” comparison with Google, which we did back in the early days of Mahalo actually. But they have a whole video campaign around it where you can compare the two without knowing which is which. They say the result is that 2 to 1 people prefer Bing.
Jason: That’s interesting. Congratulations to Klout, I think what Joe is doing great, he’s very underrated. He’s not a real promotional kinda guy, he’s not a great conference speaker. He’s focused on the product, so I appreciate that about him. Okay, next story.
Kirin: Alright well since we’re talking startups let’s talk about AirBnB, it looks like their latest raise is around $100million with a reported valuation between $2-3billion. It also is reported that it’s a new investor that’s leading. They did raise about $100 million at a $1 billion valuation last May with Andreesen Horowitz leading. Now, Techcrunch did a little back of the envelope calculation and they think the annual revenue is between $168 million and $240 million. So is this reported valuation reasonable and what’s a likely exit for AirBnB?
Jason: You know the problem with AirBnB is I don’t know who would actually buy it? You know when you build something so unique it is tough. You’d think the hotel industry or like the travel industry, like Kayak or someone like that. But then you think, if they start putting this stuff into the mix, then what happens to their hotel inventory? When you build something this disruptive it’s hard to know where it lands. I could see like a Yahoo, or even Google, or you know Amazon would be a likely buyer I guess. I think what it means is that they’ll go public.
Paige: They’ll probably acquire these other collaborative consumption companies, whether it’s a ride share company, and Uber or something.
Jason: I think they even have some cars in the system that they were testing like two years ago, but it must not be that great of a business for them to change things. It’s really interesting, people are now furnishing and designing apartments and buying apartments to put them on AirBnB! So this is becoming like the same way you have Ebay, where people who were unemployed were making Ebay their job, this is becoming like that. I rented a house up in San Francisco for the Launch Conference on March 4, 5 and 6 2013. If you look at this studio here, it’s designed for people who want to rent from AirBnB. They’re probably making $3000 a month off of this thing. It’s just like Ebay, people are making a living from it, and that’s when you know this thing could get really big. When I was up in San Francisco somebody owned 3 houses and that was their full time job, renting out these places. The person who was the proprietor was cleaning out the houses because a maid in that town is gonna charge so much to clean it. This guy was on it, he was texting me and was like “do you need anything, what kind of coffee do you like?” He was really thinking about everything. Have you stayed at AirBnB Paige? Or you’re just so baller you’re going to hotels?
Paige: I’ve used it and I actually put the first offer in to invest in it.
Paige: Ya, I met them in early 2008 when they had like 50 transactions. We tried to get them to acquire CouchSurfing.com and I put out an offer of basically $200,000 for a post money of around $2million, and the next day they went to YC.
Jason: Ah man, crushing.
Paige: They’re great guys, and I really loved the vision. It’s one of the few teams and you’re like “these guys have killer product sense”.
Jason: Well they’re also hackers, they hacked Craigslist.
Paige: Remember the cereal boxes they did.
Jason: No, what was the cereal box thing?
Paige: They worked with the DMC to create Obama Os and Captain McCains to promote themselves.
Jason: Now they’ve got so much inventory that they create these different categories like “treehouses”, which is pretty dope. I guess they also sent out professionals to shoot, or do people shoot them themselves?
Paige: This is one of the first companies to see that great photography and great product can really increase the value of the inventory. They could have put up crappy pictures of homes, but they really made sure you have the right visuals.
Jason: I’m gonna take my daughter and my wife to one of these treehouses, this is pretty cool.
Kirin: One of the other bits of news about AirBnB is that they now get 26% of all their traffic from mobile, so that includes apps and mobile web, that’s up 12% from a year ago.
Jason: If I’m curious about the value of a house around me I pull up one of these real estate apps like Trulia and see what a house within 1 mile of me is.
Paige: So it’s kind of a kick in the nuts when I remember AirBnB was like my first term sheet. And they went to YC, cause nobody knew me then.
Jason: So what’s the lesson there? Move faster to close the deal? But you already shook on it so what could you reall do?
Paige: I had just come back from Africa doing military stuff, so nobody knew me, you wouldn’t even return my emails then Jason!
Jason: Tyler sussed you out and he said this guy seems like a real deal. I’ll tell you what the thing is about the LA scene, people think “I’m in LA therefore I have to meet with Jason, or Mark Suster” because I’m in LA. There’s no filter other than that. So when I get an email like “Hey we’re both in LA and in the internet business” that doesn’t mean we have to have lunch. If there was someway for me to put a score on you as a person or angel investor, then I would have had lunch with you.
Paige: Like Klout.
Jason: Ah snap! Okay next story.
Kirin: Alright so let’s talk about MySpace’s redesign.
Jason: Next story!
Kirin: You don’t want to talk about MySpace’s redesign?
Jason: Alright fine!
Paige: Who’s actually going to go to Myspace?
Kirin: Okay so the social network for creatives and their fans, and we all know that NewsCorp which bought it for $580 Million sold it to Specific Media for about $35 million last June, one of those owners includes Justin Timberlake. The Verge said it looks like a cross between Pinterest and the tablet version of Google Plus. One of the interesting things artists will be able to do is to promote their top fans. So what are the chances that MySpace can re-invent itself here? Does Justin Timberlake’s involvement make it better or worse?
Jason: It makes it worse. Honestly I’m telling you his involvement makes it worse. The problem is you can’t restart a dead brand like this unless their was some loyal fan base. Let’s talk about Apple, at least Apple had this core base of people who loved it. Who is the core base of people who love MySpace?
Tyler: Before the show started we touched on this briefly which was which companies in the history of tech were able to have some sort of dominant position like MySpace had, disappear, and then come back. Apple really stands out as the only one that did that.
Kirin: Well Apple was never really at the level of a MySpace.
Tyler: It pretty much was.
Kirin: It was a dominant player in the PC industry.
Jason: It did make the most innovative products of it’s time, it did have huge sales. Putting aside the analogies of the past, it does look like they hired someone with good design sense to do this, and yes it is a Pinterest knockoff, but social networks you cannot go backwards on social networks. People don’t want to go backwards. Even Facebook is having this issue and they’re not even dead. If you talk to anyone who is under a certain age they just shake their head if you say Facebook, they all say “I use Instagram, or I use whatever” they just don’t like Facebook. There is no way for MySpace to work. Justin Timberlake being involved with it, and Leonardo DiCaprio being involved with it, it’s almost like a desperation hail mary now. You have to rise and fall on the reputation of your product and it’s utility in the world, not you know, ripping off Pinterest’s design or having Justin Timberlake involved, that’s usually a desperation play. It’s one thing if you have something subtle like Uber has Edward Norton as an investor right, but it’s not like Edward Norton is the first thing out of Travis Kalanick’s mouth. You may see a picture once in a while of Edward Norton using it on his Twitter, but that’s it. So when the first thing management says is “We have Justin Timberlake” the first thing I say is “you have nothing else”. When Leonardo DiCaprio is investing in Fisker, then the car must suck. They need to do that to draw attention.
Kirin: Sure, but celebrities don’t want to damage their brands either. We all remember Whoopi Goldberg and Flooz. Leonardo and Fisker makes sense.
Jason: Ya he’s the big “green” guy and all that, I don’t know I’m kind of disappointed in that. What do you think Paige?
Paige: Which company?
Jason: Exactly, next story. It looks decent, but I don’t know.
Paige: I would bet one full testicle that it won’t go anywhere, if you bet one of yours that it will go somewhere. Or an ear, you can go for the “Van Gogh”.
Jason: Wow! Ear for a testicle. This is the kind of bets that military contractors do. Next story!
Kirin: Well talking about violence, let’s talk about Angry Birds. This is the follow up to Angry Birds, the first time Rovio is releasing an Angry Birds spinoff. They actually hit the top spot on the app store in 3 hours after it was released on Thursday. Angry Birds Space hit 10million downloads in 10 days, 50million in 35 days. In Bad Piggies you’re actually trying to get the pigs to the finish line using fans and wheels, it’s a physics game.
Jason: It is a physics game, but it’s a physics, build something game. Kind of like “Where’s my water”. Angry Birds is throw something, this is like “build a little car to move the pigs”.
Paige: Like a “Rube Goldberg”.
Jason: Ya exactly. So the idea here is, you know how the pigs have the eggs? Now you have to build the contraptions to help the pigs go over to get the eggs. It’s a lot of fun.
Kirin: You get 60 levels for just $0.99, $4.99 if you get the HD version. So what could Zynga learn from Rovio.
Jason: Well, originality, that would be an obvious answer. Also, they’re not just dependent on this. When I went to the movies I saw these “Angry Birds Sour Candies”. If you think about it that’s what creativity does for you. So in the critique of Zynga, because Farmville was sort of a knockoff, none of their stuff is really original. But if you do create stuff that is truly original, the chances are way harder to succeed, but if you do succeed you have intellectual property that is valuable and protectable. Where’s My Water copied Angry Birds, but nobody cares about Where’s My Water, that’s not going to become a candy, but Angry Birds, if you go to the playground half the kids have Disney Princess, and the other half have Angry Birds. My daughter knew Angry Birds before she ever played the game. She has stuffed animals of Angry Birds, her first introduction to them was a physical toy, not the game. This has become a franchise that will be here for decades. It’s basically created the next Bugs Bunny. So if they’ve had like a billion downloads they’ve only made like $700 million, that’s not a ton of money, it’s not like multi billion dollars, but they will make so much off of the tv series, and movies and all the licensing. Disney has tried to buy this company like ten times I guarantee it. Is there anything on record about Disney trying to buy them? This is Disney’s number one acquisition right now. That’s why they created “Where’s My Water”, to make the acquisition talks reasonable with them. I don’t know why Disney charged for it, they should just have given it away so they could have the alligator character in the theme parks, and make a Where’s My Water themed park out of it, that would really screw with Rovio. Next story.
Kirin: So we gotta talk about Marissa. We all know she’s got a new CFO over at Yahoo, she got rid of Tim Morris who was well known for cost-cutting, and she’s brought in a guy named Ken Goldman from a company called Fortinet doing computer security work and we also know she had this all hands meeting where of course various bits of strategy leaked out. She wants Yahoo to excel in personalization, to lead in mobile, more resources for product folks and so forth. Kara Swisher must have the most amazing sources within Yahoo and she got a copy of this strategy report last year, and it sounds a lot like what Marissa was talking about this week. I guess the question is how would you grade Marissa now, and do you think she is on the right track?
Jason: She’s getting great talent into the company, and it does seem to be trending towards young internet natives. If you’re internet native you’re probably between 30-40, you’ve been working in the industry for 10-20 years. Kathy Savitt from Lockerz, she hired her. I always used to associate Lockerz with like a multi-level kind of spammy thing. Anyway, this seems like she’s pulling together a pretty solid team and I guess the real question is can anybody save Yahoo?
Kirin: Om Malik did say this week that the rock is so deep that you can’t save it.
Jason: Ya I thought Om was right with that, I mean I don’t know if I agree with him, but boy is she giving it her all. It’s non-stop. If she just makes it stable, all it takes is just one great acquisition like Google-YouTube, or one great product like Xbox for Microsoft, that’s all it takes. So really when you think about it you have to build a foundation, and that’s a sustainable business that’s not deteriorating with a great team, and with the ability to buy stuff. She’s done that, so there is hope there now, and good people are joining. All she’s got to do is stay the course, and good things are going to happen. She is in the game. I’ve been through this, I mean after Panda update I had to get Mahalo organized, get the right team involved, build the right products, hope is back. Then we had like two or three deals that were material deals that really helped us, and pushed us forward in this new direction. That’s what she’s done. That’s amazing that she’s done it so quick. But boy the media is going to be all over her if there is one bump in the road just like they are for Apple right now for the stupid maps thing. One person leaves, or one mistake, it’s going to be insane.
Kirin: So how would you grade her?
Jason: I’m still A+. If you’re getting qualified people to come on board as CFO, CMO and the troops are happy, and people want to work there again, that means people will want to sell their companies to her. There are great companies out there. I mean previously if Yahoo came to me and was like we want to buy Mahalo, we want more apps, we want more content, I would have been like “ahhh, Yahoo, that’s kinda like defeat to sell to them”, now it’s like “Ya, I’d be happy to take the meeting”. It’s like a fresh new company, she’s really shined it up a lot, there is hope.
Kirin: I mean, working for a company is a lot different than having that company acquire your company though isn’t it?
Jason: No it’s not, as an entrepreneur who you sell your company to, like when I sold my company to AOL people were like “oh you sold your company to a disaster”, it wasn’t as prestigious as selling it to Google. We did it because they would pay a magnitude more because they needed us, so sometimes the economics matters, but as an entrepreneur you have some ego about it, you want to sell to a winner. That’s why Facebook was never going to sell to Yahoo. Zuckerberg would never sell to this wounded company, but selling to a company that’s growing, I think entrepreneurs really care about who they sell to. What do you guys think about Yahoo?
Paige: I think your example of Google and Android and YouTube, Google was doing extremely well. The problem is when you sell it usually means cash plus stock right. So for me as an investor, if one of my companies sells to Yahoo I’d really worry about taking Yahoo stock. So if they’re going to buy a good company, they’re going to have to buy it with cash. There planning to put their cash out as a dividend I think.
Jason: I think they’re putting out 80% of it. What did they keep Kirin?
Kirin: They kept $650 million.
Paige: So if you want to buy a proven winner most of these deals are going to have to be 70-80% stock.
Jason: You’re right, people are going to be way happier to take Google or Amazon stock.
Paige: I would rather take ConstantContact stock.
Jason: What about Facebook stock at this point?
Paige: At this point, I would go cash.
Jason: Wow, that’s a big statement coming from Paige Craig. Paige Craig says he would rather take the cash than the Facebook stock.
Paige: I would take AirBnB stock still, a lot more growth.
Jason: Me too. Do you think Facebook is going to come crashing down when this lockup ends?
Paige: I don’t think that company can come crashing down.
Tyler: Maybe the smart play is start shorting hotel stock.
Jason: No, I don’t think the business travelers are ever going to stay at AirBnB. Majority are not going to do it, it’s too on the fringe for companies. Maybe small companies, startups might do it. Startups will do it. If there are $200-300 rooms available, they’ll stay at a hotel, but when the city is booked up for a conference, and they don’t have an option. Like if during Fashion Week in NYC when rooms get up to $500 a night, I’m going to AirBnB, but I’m not going there other than that. It’s just too creepy to be at someone’s house.
Tyler: The boutique hotels are the ones that really get crushed out of this then.
Jason: I just think for a certain segment of the population they just don’t want to stay at somebody’s house, it’s creepy and easier just to know I’m going to get room service, I’m going to have a clean room, I don’t have to worry about it. They want consistency, and it’s not material to save $50 on a trip per night for a business traveler, but when it becomes material because the city is overwhelmed because of the DNC, that’s when people start considering it, that business traveler segment.
Paige: AirBnB is not just about price anymore. If you go to New York, you’re going to pay anywhere from $10k a night, to $100. You can get stuff that no hotel will ever have. You can get yachts, it’s amazing.
Jason: Did you use it on your trip?
Paige: We used it twice. We used it once in Berlin before we went to the SOHO, and we used it for a really cool village cabin in Croatia.
Jason: And what was your experience?
Paige: Excellent. The people who run their AirBnB home, they care more than most hotels. We stayed at the Carlton in Cannes, and the experience was whatever, those people didn’t care about their hotel as much as the people that own their house in Croatia.
Jason: These people are dopes, two bedroom apartment in the west end on 63rd street, with a doorman for $5500 per night! Are you on crack?!
Paige: Look at that $10k, I told you.
Jason: Ya what is that $10k for? Upper west side duplex family home. Are these guys crazy? Who is this guy? Look at him “Rich” with his dog. This place doesn’t even look that good. I mean for $10k a night can I at least get a Viking stove? Give me a break. There are some dopey people on this system who don’t understand what they’re doing. Look at this $3000 a night, lounge bar, 50+ venue, that’s cool. Anyway, next story.
Kirin: Okay last story, Facebook is launching gifts. You’re now going to be able to buy a real world physical gift on Facebook and give it to your friends. It’s going to be tied to significant event reminders like a birthday. And you can give someone a gift directly by pressing the gift button. This is all of course because Facebook acquired Karma back in May, so it’s not surprising that they’re doing this.
Tyler: Are the gifts based on the person’s interests?
Kirin: Well they’ve got 100 retailers they’ve partnered on this, the biggest being Starbucks. There’s things in food, and kids, and fashion and home categories and things like that. So, I guess my question is where could this go wrong and should Amazon be concerned?
Jason: I don’t by it, I just don’t buy it.
Kirin: You don’t think people will give each other gifts through Facebook?
Jason: They might.
Kirin: It’s super easy, you’re already on Facebook anyway.
Jason: I guess so, ya. I just don’t go there to by gifts. Maybe.
Tyler: They do gift recommendations based on the person’s interests.
Jason: I guess it’s about how hard is it. If I have to put in my credit card.
Kirin: Well if it’s like Amazon or Apple, once they have your card number they have it.
Jason: Maybe. I guess so. I guess it depends on how good the gifts are.
Kirin: People can change things to. So if you order something for someone and they actually wanted a different color, they can change it before it even ships.
Jason: Oh that’s kinda neat. Actually if I could just click to give me the damn money. What if I can re-gift it without you even shipping it to me? I guess I could see this working.
Tyler: Why wouldn’t this work? You go back a year ago and look at all the hype around $1 virtual gifts.
Jason: That never worked! It didn’t work, it was like $50 million in revenue, it didn’t add up to anything. I guess what probably happened was they saw how much people loved them, so they think it’s going to work now with real gifts. I don’t know.
Tyler: I think the novelty wore off on virtual gifts.
Jason: Well certainly, and I wonder if it is going to wear off on this.
Paige: Well you said it first, you don’t go to Facebook to shop. The experience is not designed to help you shop. I am not going to go to Whole Foods to buy an appliance, even though I love Whole Foods, it’s not designed for appliances or electronics.
Jason: Right, even if they had an appliance row.
Paige: Doesn’t matter. Facebook is not going to change their social. I mean this is someone who needs to increase their revenue by a point or something, so let’s sell stuff.
Jason: Well let’s say they have 500 million active users, and lets say 1% decide to do this every year.
Paige: I’d say 1% is a huge number.
Jason: It is, but lets just say it happens every year, that’s 10 million out of 1 billion. If 10 million use it a year for an average of $30 that’s $300 million. How is that material? Now if they each use it 10 times maybe it’s worth $3 billion, and then it’s material. But what’s their margin on the $30? If they have a 10% margin then it’s $30 million?
Paige: Now let’s think of the reverse. What if that shopping experience leads to lower engagement because people are annoyed by products.
Tyler: But how can you get annoyed by a real product?
Jason: He’s saying the obligation thing, like everyone gave you a gift.
Paige: Ya, now I don’t only have to wish you happy birthday, but I also have to get you a gift? Then you stop going there.
Jason: How does this become material? This is what I’m trying to figure out. So if 10% of people do it, 100 million people buying something for $30, that’s $3 billion in revenue. Let’s say they get 10% of that, that’s $300 million in profit. That’s nothing. It’s so immaterial.
Kirin: Who’s to say it stops at gifts? Why couldn’t you buy something for yourself? You see something you like so you send it to yourself?
Jason: I’m not going shopping on Facebook. I’m going shopping on Amazon where I know how to use the reviews and I trust them with the shipping.
Tyler: Hold on, Facebook knows 3 months in advance when you’re going to break up with your relationship, they could be preemptively saying you should be buying flowers right now.
Jason: I know all those statistics in a vacuum, but then you put pen to paper and you see that this is totally immaterial to their big business, and there is a risk that it’s annoying. I don’t see how this becomes material. Then you have Fab or something, do they buy Fab and then you have Fab start showing up in your feed? That’s not why half the people signed up for Facebook. They signed up to get pictures of their kids, and now my mom’s like “I don’t care about Fab”. If you like Fab it’s not annoying, but if you’re my mom and you start seeing it that’s annoying, and I want to be off of Facebook.
Tyler: However, to their credit Facebook has been really good about filtering out things that would potentially annoy you.
Kirin: Amazon is more than one thing to you isn’t it Jason? It’s media, it’s shopping.
Jason: Well it’s shopping for media. I buy a DVD or buy a file, it’s all sort of the same thing. And then EC2 I don’t even consider that the same company you know. I don’t know, it’s 99% shopping to me. So what is Amazon VOD? It’s still shopping to me, I’m still buying a movie right? Their search engine means nothing to me.
Kirin: What about Kindle?
Jason: Nah, I consider that just a consumption device for their media, and I’m not like a big book reader, I get the audiobook.
Kirin: But they make hardware.
Jason: Ya, I think they make the hardware just to get you to buy more stuff. I don’t see how the gifts are material. So what was your original question?
Kirin: Does Amazon have anything to be worried about here?
Jason: Amazon has no reason to be concerned. I mean Facebook should be as concerned about Amazon doing a social network as Amazon should be concerned about this. I just did the math on this there is no way it’s material, and there is no way it’s ever material.
Kirin: So why do it? Because they have enough smart people there they can do the calculation too.
Jason: I think they just want to stay in the press, and they want to put out some new features, and keep things fresh, so they want to put something new in that feed. So they just try. Listen, it could become this cultural phenomenon, and everybody uses it 10 times per year.
Kirin: And how much are you willing to bet on that right now.
Jason: Oh you want to bet?
Kirin: I’m not gambling.
Jason: It’s not going to be a testicle bet if that’s what you’re asking! I’ll bet sushi lunch, you want to bet lunch with me? It could cost you $200.
Kirin: You know it would be unfair if you made me pay for lunch you know that.
Jason: How about a 2 to 1 bet then. I’ll give you 2 to 1 odds. Two lunches for one lunch.
Kirin: So you don’t think it will become a big deal and I do.
Jason: How do you quantify a big deal?
Paige: How about $100 million a year in revenue?
Jason: I’ll do that, how about $100 million a year a year from now? 2 to 1.
Jason: Capped at $100. This is the next thing, I want a bet jar here. Listen it’s been a great episode, apologies to James Altucher for not being able to get on this episode we had a problem with our soundboard here. Thank you @SourceBits for producing great apps and helping my audience. Thank you @SquareSpace, and thank you Paige Craig and for being honest about BetterWorks, pulling the rip cord, and what it’s like having bullets fly by. I gotta tell you the first time a 50 hit us when we were in the caravan coming from Afghanistan I literally almost soiled my pants.
Kirin: When you were sitting in front of your Xbox.
Jason: Ya. Kirin, look at you pulling out the burns. You moved to LA and now you’re a comedian?
Kirin: You just give me a lot of opportunities.
Jason: Good point. Hey everybody, thanks for tuning in and we will see you all next time.
Tyler: Hey let everybody know what is Paige looking for.
Paige: Ya the best way to get to me is to have one of my friends recommend you to me.
Jason: We’ll see you next time on ThisWeekIn Startups!
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