About this Episode

Jason Calacanis hosts This Week in Startups with guest Kurt Wilms, founder and CEO of Fflick.

00:01:00 Jason introduces Fflick, which he calls the hottest new startup in town. He heard about it from Brian Alvey, the guest from the very first episode of #TWiST. Jason also announced that he’d be doing a special early Friday episode because he’s flying to New York to give the keynote at Loren Feldman’s Audience Conference.

00:02:45 Jason gives some inside information about the lawsuit between Michael Arrington and the Fusion Garage team. Jason called the lawsuit, which is allegedly being brought by Arrington against the team that he claims stole his “CrunchPad” concept for their joojoo device, “the dumbest thing Arrington has ever done.”

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00:06:30 Jason chatted briefly with Kurt from Fflick.com about what it’s like to be the hottest new startup on the block and get attention from VC’s.

00:07:25 Ask Jason – Edward Baker – After hearing rumors about all kinds of crazy offers made to Mark Zuckerberg for Facebook, Ed was wondering what Jason felt that Zuckerberg’s exit strategy was from the company. He also wondered why Zuckerberg wanted to stay with the company when he could be doing “so much more for the world.”

00:09:00 Answer – Jason feels that most rational people would sell when they have an ultra-hot startup and are getting life-changing offers to become the next Mark Cuban. Jason feels that Zuckerberg is probably staying on largely because he’s enjoying the job and likes being hands-on with the product. He also discussed the roles of Sean Parker and Ron Conway, and the ability to sell off “founder’s shares” on the secondary market, in influencing the decision-making process of entrepreneurs like Zuckerberg. Finally, Jason said that he believes Zuckerberg wants to be the next Bill Gates and may never agree to sell Facebook. Jason finished by theorizing that the caller was trying to bait him into trashing Zuckerberg, but said he’s now out of the trashing Mark Zuckerberg business.

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00:17:25 The Interview

00:17:33 Some of Kurt’s co-founders were also in the studio with him. They are Ron Gorodetzky, the CTO, and Dav Zimak, the Chief Science Officer. The fourth founder, Marc Hemeon (who is CCO), could not attend the interview.

00:17:53 All four co-founders worked at Digg. How long did they all work there? Ron had worked there the longest, having come on board as a systems administrator in the very beginning. (He calls himself “Employee #0″). Jason offered Kevin Rose $4 million for the company at the time, but Rose didn’t take it.

00:19:20 Are Rose and Jay Adelson cool with these four guys leaving to start their own company? Kevin and Jay are entrepreneurial guys and are fine with Kurt and his team’s decision to break out on their own. They’re also fans of Fflick and are excited about the project. It’s a natural evolution, after working at startups, to want to start a startup yourself. (Ron is also a co-founder of Internet TV network Revision3.)

00:20:21 When and how did the idea for Fflick come about? Kurt was working on another movie site called MovieLens.org, which originally got him involved in the combination of the Web and movies. He then got the idea of mining information from Twitter for a movie review website.

00:20:56 What is Fflick and why should I use it? Fflick is a “social media platform.” Movies are just the first experiment with it. The idea is to build vertical sites that analyze and pull in data from Twitter. Other verticals may include TV shows, movies, etc. The “Fflick Score” is a “sentiment rating” (basically a favorability rating) out of all the tweets that are pulled in. Machine learning algorithms are used to label certain kinds of tweets to determine whether they are positive or negative.

00:22:35 How does it work? Dav explains that combinations of words are broken down into parts that provide context clues into the intent of the tweet. If humans label enough tweets correctly, the machines can learn to accurately determine if a tweet is posivie or negative. Various tricks – such as keywords and linking similar terms (like movie titles and actors) – are used to determine if a tweet is actually about a movie or about a word that happens to also be a standard noun. The Netflix API is used to pull in information about specific films. Twitter users are also ranked according to influence (based on follower-to-followee ratios).

00:24:55 Why not ask people to rate movies instead of pulling their ratings off of Twitter? Fflick actually does encourage people to tweet their thoughts on the movie right from the site, and thus vote on the movie via the site. It’s built-in marketing. Jason noted he wanted more nuanced rankings than “love” and “not love.” There are plans at Fflick to rate movies on more of a sliding scale; this functionality just isn’t public yet.

00:26:45 How accurate is the system? Most people seem to think it’s fairly accurate. It’s early, though, and algorithms will be enhanced over time. The machines also give an indication about the level of accuracy they are providing. Dav also noted that the system can have an unfair bias towards films that are tweeted out by celebrities. (If Ashton Kutcher tweets about a movie, there will be more “positive sentiment” about it, but possibly because HE is popular, not the film.) They’re working on improving this.

00:27:45 How do you rate a film that isn’t out yet? It’s basically people rating the trailer, the marketing, the hype around the movie, etc. It’s like a “hype score.”

00:28:16 How closely do Fflick scores align with those on Metacritic and Rotten Tomatoes? A blogger did a study where he graphed the three ratings systems against one another. They match up fairly well for the movies that were graphed. Fflick and Metacritic seem to align pretty closely. (The one divergence Fflick’s team noticed was “Charlie St. Cloud.” Critics bashed it but female Zac Efron fans on Twitter bumped up and inflated its Fflick score.)

00:29:00 Is it international by design? The team tries to pull in new release movies from everywhere. Profile pages are international by default.

00:29:42 Do you have to sign up? Is that ethical? Does anyone get mad? Everyone automatically is pulled in. If you go to Fflick for the first time, it’ll take a few moments while the site looks up your Twitter feed. Some people have been upset about having a profile made for them without consent. But the site is only pulling in publicly-available information and not actually forcing anyone to create a Fflick account.

00:31:10 Digg’s team is supportive? Are there concerns about poaching? Fflick doesn’t intend to take anyone else from Digg. There’s no official “no poaching” agreement, but as friends with Kevin, they’re going to refrain from taking any more Digg employees.

00:31:40 Who do you show this to first? Did you start raising angel funding? Some of the founder’s friends and family members gave them angel investments to pay for servers. There’s been some buzz in the investor community, particularly following the TechCrunch article. Kurt said that studio executives have also gotten in touch thinking about ways to collaborate, though thus far there have been no direct efforts to get them to adjust low ratings for films.

00:35:05 Will the revenue model be selling ads to studios and getting people to watch trailers? How do you work that in without selling your soul? Fflick is working on creative ways to work in advertising into the site. One possibility is using Twitter’s “promoted tweets” model.

00:36:00 How does this business model become defensible? Couldn’t Flixster or another company just start doing this themselves? Kurt says creating a system like this one is not a trivial problem. There are a number of difficult computer science issues – like disambiguation – that have to be solved to make this system work properly. Working with Twitter is one thing; Facebook, on its huge scale and with its social relationships, will be even more complex.

00:37:00 Why don’t users currently have the ability to correct inaccuracies in Fflick? They’re working on that feature. They also may build in the ability to “correct” your sentiment about a film in case the system got it wrong.

00:38:00 Are they using this system to watch the stock market? Not yet. An issue with any financial issue is getting rid of the inaccuracies and junk in the Twitter stream and getting only good quality stock information. There’s also the issue of differentiating comments about the brand itself vs. the stock.

00:39:30 How many tweets will they need to look at to be sure they get it right? Dav calls this a general machine learning question. The amount of data they need to look at depends on the complexity of the function. To capture all the subtlety of the language of tweets, it would require hundreds of thousands of samples. Jason and Dav discussed a general history of the concept and study of machine learning, which formally kicked off in the early ’80s.

00:43:28 How will they deal with gaming of the system without any IP data access to Twitter? They’d be happy to see that because it would mean their site is big and influential enough to be worth gaming. They also learned a lot of tricks at Digg for weeding out fraud that they could likewise use here. They also noted that people follow others on Twitter whom they already trust.

00:45:40 What do you think of the new Digg? Jason’s talking about a new feature called MyNews. It’s fun, and a good way to see what your friends, as well as tastemakers, are saying. The old Digg had hidden that kind of functionality.

00:46:40 Are they going for a big venture round? An angel round? Other goals? Immediate goal is to get into other verticals, and bring in other social media, such as Facebook. That’s the product roadmap. Financially, they’re looking to bring in money to execute on their roadmap and continue hiring.

00:47:45 Has anyone been a CEO of a company before? Kurt is a first-time CEO and he’s raising money for the first time. Ron has been a founder of a new company before at Revision3. Dav is starting up a company for the first time. Jason thinks it will be easy for them to raise a round because they already worked for an “epic startup” and have instant credibility. It’s social proof that they will work well as a team. Tyler likes that they already have a ton of content on their site; it’s already working and has information readily available. (This was an insight!)

00:50:10 The News

00:51:48 Google-Verizon “Open Internet” Plan

On Monday, Google and Verizon released their “joint policy proposal” to the FCC for how to handle Net Neutrality. Both started by insisting that they love the open Internet and don’t want to prioritize Internet traffic.

There do seem to be plans, however, to prioritize yet to be determined Internet services that may come about in the future, such as health care monitoring, online education services, “smart grids,” online gaming networks and so forth.

The policy proposal also suggests a prohibition against ISP’s discriminating in any way in lawful Internet traffic, applications or content.

The companies were careful to say that they aren’t actually engaged in any business discussions, and simply wanted to formulate a joint policy proposal for the FCC moving forward.

We should note (as did Gizmodo and many commenters did at many blogs) that none of these proposals apply to wireless Internet, save the need for “transparency.”

Are they leaving wireless open intentionally as a loophole, as it’s the fastest-growing method people are using to access the INternet? Could Google theoretically favor traffic going to Android phones over competitors?

Feedback – Jason and his guests felt that Google had too much to lose in terms of reputation to risk messing with net neutrality issues. They benefit from a more open, free Internet. Jason is troubled by how Google is targeting Yelp for extinction through SEO. (He’s investigating this and wants viewers to send tips if they know more.) Jason also is concerned by the involvement of Verizon, which he does not trust to be fair or competitive.

00:57:30 More on the Mark Hurd Case

Last week, we discussed the departure of Mark Hurd from HP amidst allegations of inaccurate expense reports that were discovered during a sexual harassment investigation. Well, the story has continued to make headlines.

Reuters reports that Hurd will leave HP with an estimated $34.6 million exit package. That includes $12.2 million in severance, plus millions in vested options and restricted stock.

This is after HP has claimed, recall, that Hurd falsified thousands of dollars ine xpenses to hide his relationship with former contractor, reality TV star and B-movie actress Jodie Fisher.

How are HP stockholders not up in arms about this? If you’re caught falsifying expense reports, shouldn’t you get nothing? Isn’t that what would happen if someone got caught stealing from Mahalo?

Oracle CEO Larry Ellison wrote an e-mail to the New York Times calling HP’s board’s decision to “force out” Hurd a “grave mistake.”

“The H.P. board just made the worst personnel decision since the idiots on the Apple board fired Steve Jobs many years ago,” Mr. Ellison wrote. “That decision nearly destroyed Apple and would have if Steve hadn’t come back and saved them.”

Oracle has been a major rival to HP in the computing hardware market, particularly since its acquisition of Sun Microsystems, and Ellison and Hurd are close friends.

The Times has also reported that the HP board made the decision to remove Hurd based on the advice of a PR specialist who warned that the sexual harassment investigation would lead to months of humiliation for the company.

Feedback – CEO’s need to be paranoid and over-the-top to avoid even the appearance of inappropriate contact with employees or financial irresponsibility. In this case, Hurd misappropriating funds and then spending them on a relationship with Fisher sounds like prostitution, though Jason was careful to stress that this is not an allegation but merely a suggestion based on the available information. Jason feels that Hurd should return his bonus.

01:08:36 Google Acquires Jambool for $70 Million

YET ANOTHER Google social acquisition this week as the search company purchased Jambool, the makers of the “Social Gold” payment system, for a total of of $70 million. Social Gold allows app developers to build payments directly inside apps like games. The company was founded by former Amazon employees Vikas Gupta and Reza Hussein and thus far has raised $6 million in funding.

So far, Google has made a deal with Zynga for games and Slide for apps. Could this be Google’s attempt at a version of “Facebook Credits”? Think we’ll see even more Google social acquisitions in the weeks ahead? What do you think their Google Me social network will actually be like?

Feedback – All Google has to do is provide a viable alternative to Facebook and they’ll impede Facebook’s progress. It doesn’t have to be better; just viable.

1:11:15 Skype IPO

Internet telephony company Skype has filed with the SEC hoping to raise $100 million in an initial public offering. The company plans to trade on the NASDAQ Global Market, and is expected to immediately become one of the largest publicly-traded Internet companies. Last year, eBay sold Skype to a group of private investors at a valuation of $2.75 billion.

The company currently has 560 million registered users, about 124 million of whom are active on a monthly basis. 8.1 million of these users pay monthly fees to use Skype, and average spending about $96 per user per year. For the first six months of 2010, Skype reported revenue of $406 million, and net income of $13.2 million.

The company notes that their future is a bit in question, due to their overwhelming dependence on the SkypeOut service (which allows Skype users to call people who aren’t using Skype, but just normal landlines or cell phones) for revenue. If a lot more people start using Skype, in other words, this means more Skype-to-Skype calls, which are free.

Would you invest in Skype stock? Where else would you take the company from here?

Feedback – Jason feels there are many places to take the Skype brand, particularly handset phones and taking some of the telecom industry’s business. He also thinks this is great news because “the IPO is coming back,” which is good for entrepreneurs and innovation. (Dav prefers using Skype to traditional telephone calls.)

01:17:00 Gowalla Unveils Check-in API

DISCLAIMER: Jason is an investor in Gowalla.

Location-based service Gowalla unveiled their new check-in API, meaning that third-party apps can now write to Gowalla’s API for the very first time. Gowalla issued the following “6 Commandments” that all developers should follow:

• Check in where the user actually is
• Don’t encourage checking in where the user isn’t
• Never check in without permission from the user
• Encourage social behavior, discourage bot-like behavior
• Rapid, repeated checkins are not tolerated
• Use the API responsibly

As TechCrunch notes, the discouragement of “fake check-ins” implicit in these instructions is at odds with FourSquare, which encourages users to get “creative” by inventing places to check in and generally mucking about with the service.

What do you think of Gowalla’s more structured, organized approach to check-ins, as opposed to FourSquare’s more lenient, loose approach? What are some applications you hope to see developers do with this API?

Feedback – Jason agrees that FourSquare will continue to be the “loose” system where people can goof around with location and have fun, whereas Gowalla will become the more organized, trusted place to look at locations where people have actually been. Jason thinks, over time, as these systems interact further with the real world, having a trusted way of determining where people have actually been will become increasingly important.

01:19:20 Epix Streaming Deal with Netflix

Netflix has closed a deal with premium cable channel Epix to give Netflix exclusive streaming rights to Viacom, MGM and Lionsgate films. The movies will show up 90 days after they debut on TV on Epix. The partnership won’t be permanent, necessarily – the LA Times claims it’s locked in for five years. Netflix also recently signed a similar deal with RelativityMedia, to have access to stream the movies during the pay TV window – a bit earlier than the 90 day Epix delay. The LA Times reported that this deal could cost Netflix some $1 billion over its multi-year lifetime.

How important are these kinds of deals for Netflix as it competes with services like Blockbuster, Hulu and RedBox, as opposed to having a lot of new releases right away, or competing in terms of price points?

Feedback – Netflix has a loyal base of movie fans, so Jason’s pretty confident Netflix will continue to enjoy success with a balance of a good streaming selection with discs filling in the gaps.

Speaking of Netflix, Lon recommended everyone watch the documentary “The Art of the Steal,” about the Barnes art collection in Merion, Pennsylvania. Jason recommended “Stranded: I’ve Come From a Plane That Crashed on the Mountains,” a documentary about the 1972 plane crash that stranded the Uruguayan rugby team in the Andes mountains.