The Latest from TechCrunch |  |
- Hacker Of German Facebook Clones Commits Suicide In Jail
- Two Companies That Said No To Social Media Scams
- Scamville: The Social Gaming Ecosystem Of Hell
- We Want To Do More Meetups In Europe But We Need Your Help
- NSFW: Halloween in San Francisco and the gathering clouds of a location-based privacy storm
- Don’t Have A Halloween Party To Go To Tonight? Watch Heidi Klum’s Live.
- Meta: Bing Jingle Guy Writes Song For Students Who Sang Bing Jingle
- The Rebirth Of The Sample Sale
- Scan Your Business Cards On The Go With Business Card Reader
- For The Future Of The Media Industry, Look In The App Store
| Hacker Of German Facebook Clones Commits Suicide In Jail Posted: 01 Nov 2009 05:13 AM PST
Back in August Facebook officially became Germany's biggest social network, increasing reach by more than 50% from March to July 2009 taking it to 6.2 million unique users in Germany. By contrast StudiVZ had 4.28 million uniques. Then StudiVZ became the subject of some high profile hacks which showed up its lax attitude to security. In particular was that by a 20 year old man who used crawler software to harvest detailed user information from all of the “VZ” sites (owned by VZ-Netzwerke), copying 48,000 profiles in just four hours. Crunch Network: CrunchBase the free database of technology companies, people, and investors           |
| Two Companies That Said No To Social Media Scams Posted: 01 Nov 2009 01:32 AM PST
We’ve got a lot more to say about this before we’re done. And we’re hoping that Facebook and MySpace make the right decisions for users and begin to enforce their own rules on subscription and other scams. Even if it means a huge drop in advertising revenue from the apps that rely on scams to make money. But in this post we’re going to let two other people make their points. In a comment to the post yesterday HotOrNot founder James Hong talks about how his company tried, and quickly removed, scammy offers from their site. He says “In a nutshell, the offers that monetize the best are the ones that scam/trick users.” And PlentyOfFish founder Markus Frind talks about being pitched by companies like Offerpal and SuperRewards. He also follows up with a post on his own blog. James Hong: We ran offers like this back in 2005 for a very short period of time at HOTorNOT, that is until we realized what was going on. In a nutshell, the offers that monetize the best are the ones that scam/trick users. Sure we had netflix ads show up, and clearly those do convert to some degree, but i'm pretty sure most of the money ended up getting our users hooked into auto-recurring SMS subscriptions for horoscopes and stuff. When I hear people defending their directory of deals by saying Netflix is in there, i am reminded of how hotel pay-per-view has non-pornographic movies. Sure it gives them good cover, but we all know where the money is made. In the end, we decided to turn the offers off. Quite frankly, the offers made us feel dirty, and pretty much on the same level as spammers. For us, the money just wasn't worth it. On top of that, we relied on our goodwill with users and focused on growing by having a product and company that our users liked. Our sense was that using scammy offers would make good money in the short run, but would destroy our userbase in the end. Perhaps apps on facebook don't feel this pressure because facebook is so huge, and there are always new people to burn. I'd like to point out that there are some game companies out there who are holding out on using offers to monetize their users. Personally, that makes me 10 times more likely to pull my credit card out for them. PS. I don't think the concept of letting people fulfill offers to get credits is structurally a bad one. I for one would like to see the offer networks work together to create some set of public agreement on what types of practices are banned from their network, and perhaps they can evan have some sort of certification logo. These practices will only stop when companies are not competitively crippled by NOT doing them. In effect, we need a nuclear non-proliferation treaty among the offer networks. Markus Frind: I'm surprised it took this many years to be reported by the "media". These kind of scams have been going on for years and I get several emails a month from these vendors promising to make me millions of dollars a month. I've no doubt I could make millions a month off these scams, but they are scams and will eventually bring government regulations. Michael mentions tattoo media look up tatto media sued on google and you will see all the government agencies sueing them. Michael, is just barely scratching the surface, these scams are extremely far reaching and deep. Some of these scams are charging users over $1 million dollars a day, and many of these middle men/networks are nothing more than smoke screens. There are a number of comments from anonymous posters saying that there’s no fire here behind the smoke. The thing is, they’re lying. Crunch Network: CrunchBoard because it’s time for you to find a new Job2.0   |
| Scamville: The Social Gaming Ecosystem Of Hell Posted: 31 Oct 2009 09:10 PM PDT
In short, these games try to get people to pay cash for in game currency so they can level up faster and have a better overall experience. Which is fine. But for users who won’t pay cash, a wide variety of “offers” are available where they can get in-game currency in exchange for lead gen-type offers. Most of these offers are bad for consumers because it confusingly gets them to pay far more for in-game currency than if they just paid cash (there are notable exceptions, but the scammy stuff tends to crowd out the legitimate offers). And it’s also bad for legitimate advertisers. The reason why I call this an ecosystem is that it’s a self-reinforcing downward cycle. Users are tricked into these lead gen scams. The games get paid, and they plow that money back into Facebook and MySpace in advertising, getting more users. Who are then monetized via lead gen scams. That money is then plowed back into Facebook and MySpace in advertising to get more users… Here’s the really insidious part: game developers who monetize the best (and that’s Zynga) make the most money and can spend the most on advertising. Those that won’t touch this stuff (Slide and others) fall further and further behind. Other game developers have to either get in on the monetization or fall behind as well. Companies like Playdom and Playfish seem to be struggling with their conscience and are constantly shifting their policies on lead gen. The games that scam the most, win. And some users aren’t dumb, either. For every user who gets tricked into some fake mobile subscription, there’s another who can beat the system. That’s where the legitimate advertisers, like Netflix and Blockbuster, get hit. Users sign up for a free trial with a credit card, get their game currency, then cancel the membership and start over. Netflix has a policy of only paying for a user once. But game developers use a complex set of partner chains to launder these leads and try to get them through for payment. Netflix sees an overall lowering of quality and pays less for leads. Game developers, desperate to monetize, then search for ever more questionable offers to make up the difference. In the end, the decent advertisers are out, and only the worst of the worst remain. Left alone, the system really will slide into a full blown disaster. The platforms (Facebook and MySpace) are in a position to regulate this, and even have rules prohibiting some scams. But those rules are routinely ignored by developers, and are rarely enforced by Facebook and MySpace. There can be only one reason Facebook and MySpace turn a blind eye to user protection – they’re getting such a huge cut of revenue back from these developers in advertising. If they turn off the spigot, they hurt themselves. Zynga may be spending $50 million a year on Facebook advertising alone, fueled partially by lead gen scams. Wonder how Facebook got to profitability way ahead of schedule? It was a surge in this kind of advertising. The money looks clean – it’s from Zynga, Playfish, Playdom and others. But a large portion of it is coming from users who’ve been tricked into one scam or another. And recent moves by Facebook to shut down application spam only make the problem worse in some way – game developers have to spend more money on advertisers to get users now that the viral channels are shut down. That means the games have to monetize even better. Which means more scams. It’s time for this to stop. Facebook and MySpace need to create and enforce rules against it so that game developers aren’t tempted to get a competitive edge by scamming users. And if Facebook/MySpace won’t protect users, then the government will have to step in. There’s an easy way to determine if something is a scam or not. For any particular offer, ask yourself if anyone would buy the product or service if the terms were clearly spelled out for them, and they weren’t being bribed with in-game currency. The answer for many of these is a resounding “no.” A few examples are below. Examples Of Scams:A typical scam: users are offered in game currency in exchange for filling out an IQ survey. Four simple questions are asked. The answers are irrelevant. When the user gets to the last question they are told their results will be text messaged to them. They are asked to enter in their mobile phone number, and are texted a pin code to enter on the quiz. Once they’ve done that, they’ve just subscribed to a $9.99/month subscription. Tatto Media is the company at the very end of the line on most mobile scams, and they flow it up through Offerpal, SuperRewards and others to the game developers. As you can see in the image below, nothing in the offer says that the user will be billed $10/month forever for a useless service. Another scam: Video Professor. Users are offered in game currency if they sign up to receive a free learning CD from Video Professor. The user is told they pay nothing except a $10 shipping charge. But the fine print, on a different page from checkout, tells them they are really getting a whole set of CDs and will be billed $189.95 unless they return them. Most users never return them because they don’t know about the extra charge. Woot. Again, sites like Offerpal and SuperRewards flow these offers through to game developers. See here for more on the Video Professor scam. Of course, there’s no mention of any of these payments in the offer itself: An Industry In DenialYesterday I attended the Virtual Goods Summit in San Francisco. In the Q&A session of one panel I asked Offerpal CEO Anu Shukla to explain the ethics of her business, and outlined my ecosystem of hell argument above. Shukla went on a tirade, calling my points “shit, doubleshit, and bullshit” (yes, really), but never really addressed the points. A video of the exchange is below, care of Alexa Lee. Offerpal now has a blog post up on the exchange, but they still don’t address the issues. They offer misdirection, denials and a shield of rules that are never actually enforced. Sadly, most of the audience of game developers was on Offerpal’s side. Many of these developers see quick dollars with lead gen scams and they don’t really care about how users are affected. In one session earlier in the day, IGG Cofounder Kevin Xu recommended that game developers “get users in the door to play free, then monetize the hell out of them once they’re hooked.” Sadly, it’s simply human nature to push the rules until they break. It’s time for Facebook and MySpace to protect their users from this stuff and make sure it stops. p.s. – An interesting development. Offerpal defended their mobile survey scams on stage and in the blog post referenced above, saying there was no scam involved. But today those offers have quietly been pulled down from all the games I’ve checked. If there’s no scam, why remove them? At least some good is coming from my ongoing rants. Update: Two Companies That Said No To Social Media Scams Crunch Network: CrunchBoard because it’s time for you to find a new Job2.0   |
| We Want To Do More Meetups In Europe But We Need Your Help Posted: 31 Oct 2009 09:08 PM PDT
Now, we’ve done this so far in plenty of places, such as Helsinki, Paris, Stockholm, Barcelona and more recently Berlin and Munich. Wherever we’ve been we’ve attracted 200 or more attendees – that’s practically a full conference. So we’d like to do more. But – and here’s the point of this post – we are fighting against Europe’s high venue costs. So we’re on the hunt for venue partners – maybe startups with really large spaces, or maybe universities – that can help us. Please contact our events team. Crunch Network: CrunchBase the free database of technology companies, people, and investors   |
| NSFW: Halloween in San Francisco and the gathering clouds of a location-based privacy storm Posted: 31 Oct 2009 08:43 PM PDT
This is my first 31st October as a resident of the United States and I have to say, the effort you yanks go to in celebrating the ancient Celts’ holy evening is truly astounding. Every corner store, diner, dry cleaners, police station, library and undertakers has embraced the – uh – spirit, adorning their windows with spray-on cobwebs and pumpkins and sparkly witches hats and coffins. (Although, to be fair to the undertakers, the coffins are sort of a year-round thing.) We celebrate All Hallows’ Eve in the UK too of course, and like most things on our side of the Atlantic it’s just as commercial, albeit with more irony and a better accent. But the real difference back home is that Halloween is an evening – just one evening, not a whole fucking month – aimed squarely at kids. Here, by contrast, it seems to be something far more grown-up. Something far more – well – creepy. For the past two nights, the streets around my hotel have been swarming with drunken adults dressed as hookers. Witchy hookers, ghosty hookers, piratey hookers (Captain Hookers?) and even – I’m pretty sure – hookery hookers. And that’s just the men. My hotel is just a rock’s throw from the Tenderloin and for once it’s the actual working girls who are tutting with disapproval wondering what has happened to the neighbourhood. (I can just imagine the adult revellers leaving home and being given a stern lecture from their kids, reminding mom and dad not to take candy from anyone dressed as a slutty Care Bear, lest they wake up the next morning, hungover and bleeding in the back of a van decorated to look like the Mystery Machine.) But – hell – when in the bacchanalia, right? For the past couple of weeks my Facebook inbox has been filling up with invitations to some of the four billion Halloween parties taking place in the Bay Area tonight, and it would be churlish of me to boycott them just because they’ll be full of beautiful American women dressed – literally and figuratively – to kill. Like most sensible people, though, I’ve waited until the last minute before deciding which to attend. Really, thanks to tools like Foursquare, Twitter and Facebook, there’s no need to plan ahead at all – I can just wait to see where the heat is, and head there. Indeed, the party scene in San Francisco, probably more so than in any city on earth – except maybe Tokyo and Circuit City – runs on technology. For people like me who love everything about social media, this is definitely a good thing. But it’s also the reason why I’m genuinely worried that when the dark side of our blithe attitude towards sharing physical location finally reveals itself, it will probably happen here. And what better night for dark things to reveal themselves, than Halloween? Social media parties turning bad are old news. Every few months the media gleefully reports on parents who leave their children home alone for the weekend, only to return to a major crime scene when their off-spring’s unsanctioned house-party ends up going viral on Facebook and being crashed by thousands. There are even organised groups – with bizarre names like the ‘Facebook Republican Party‘ – who scour scocial networks for party information in the hope of showing up and causing merry hell. But when something like that happens, the cause is usually the same – the idiot teenagers who organised the party didn’t think twice before posting their address online; much like they don’t think of the consequences when they create a Facebook group to share their new cellphone number. It’s just a question of educating these ‘digital natives’ on what’s appropriate to share, and what isn’t – as previous generations had to be warned about creepy old men bearing puppies. The innocence and idiocy of youth isn’t what worries me – they’ll grow out of it soon enough. What worries me is the growing idiocy of otherwise mature adults, particularly when it comes to location. In the past month or so, I’ve had conversations with two friends who have organised private parties at their homes for small groups of friends. In both cases the hosts created online invitations but sensibly ensured that any date and location information was only visible to invited guests. Yet within minutes of the first guests arriving, they were alarmed to discover that all of their privacy efforts were for nought. Their guests – their friends – had used Foursquare to check in at the party, thus instantly adding their address to the service’s growing database of highly specific locations. From that point on, a simple search on the Foursquare site for the hosts’ name provides their full home address, along with a handy map for anyone who feels like breaking in and murdering them in their sleep. To make matters even worse, as more partygoesrs checked in – all caught up in the game element of this thing, and hoping to become mayor of someone else’s living room – the information was repeatedly pushed out via Twitter. If Foursquare had a ‘Breathtakingly Irresponsible’ badge, there would have been a whole lot of recipients at those parties. And if there’s one night when you don’t want your address pushed out to the world, it’s Halloween. I remember one year – when I was maybe fourteen – a rumour went around my school that someone had found our much-hated maths teacher’s address in the local phone book. A plan was hatched to show up there on the pretense of trick or treating, but really just to throw eggs at their house, car and – hopefully – head. Of course the plan came to nothing; teachers are rightfully careful about putting their address in the phonebook. Tonight, if I were a teacher who has ever invited a tech-savvy friend to my home, I’d be shitting myself. They might have taken every logical step to stay safe but – like the rest of us – they’re still at the mercy of the most idiotic common denominator amongst their friends. Over the next few hours, particularly in San Francisco, thousands of people will be checking in at hundreds of house parties. It’s not a huge leap to assume that a decent number of hosts are going to wake up in the morning to discover that their their home addresses have been gleefully, and probably innocently, shared online by their friends. So what can be done? Obviously a constitutional right to privacy – and statutory equivalent in other countries – would be nice, but it might be a struggle to get the necessary votes before midnight. Also, good luck in enforcing it in any meaningful way when most of the people sharing the information do so innocently, and the damage can be done so quickly. A more practical solution would be for all sites and services that accept location-based data to copy Facebook’s lead by toughening up privacy options. Location-based sites owe a particular duty of care to their users – and yet currently the only option available to those who find their home address on Foursquare is to flag the venue as ‘closed’ – which deletes it from search results, but keeps it in the database, still visible to users who know where to look. It would be almost zero work for the company to add a second flag – perhaps titled “this is my freaking HOUSE” – which immediately deletes an address and prevents it from being re-added without proper verification. Also, given that the problem is usually one of carelessness rather than malice, it wouldn’t hurt to display a warning to those logging in at new venues, reminding them not to list private homes. The fact that Foursquare hasn’t already implemented these basic measures is irresponsible, bordering on shameful. Really, though, the real answer to retaking control of our own privacy won’t be found in statutory law or in terms of service. In fact, it already exists – tucked away in the small print of the social contract. Just because you’re addicted to Foursquare, or Twitter, or any other location-driven service, doesn’t mean you have the right to impose your addiction on others. If the party is in a bar, check in to your hearts content – hell, win yourself a badge – but if it’s in someone’s home, put your fucking phone away. You just look like a dork anyway. If we all started thinking a bit more like friends, and a bit less like attention whores, the privacy problem would be solved at a stroke. Judging by the gang of Harry Potter-themed hookers who just walked past my window, my attempts to convince America that Halloween is a night for children is too little, too late. But let’s at least leave the boneheaded location oversharing to those who aren’t old enough to know better. Crunch Network: CrunchBase the free database of technology companies, people, and investors   |
| Don’t Have A Halloween Party To Go To Tonight? Watch Heidi Klum’s Live. Posted: 31 Oct 2009 06:40 PM PDT
Sure, it’s not as good as being there, but it beats doing nothing. And it’s being done with the help of Modelinia, a site devoted to capturing the lives of super models. Enticed yet? You can find the live stream on Modelinia’s Facebook page starting at 9 PM PT tonight. The streaming itself is being handled by Livestream, who will run it through 11:30 PM, we’re told. Klum’s Facebook fan page along with Modelinia’s page have nearly 700,000 fans, so if you do watch this, you definitely won’t be alone. And there’s a chat widget running next to the stream to talk with others watching it. Modelinia’s goal with this wasn’t solely to stream beautiful people at parties, they also ran a costume contest with Klum to allow the best costume designers to win tickets to the actual event. Modelinia’s founder and CEO is Desiree Gruber, a producer to the Emmy-winning show Project Runway. I’ll go ahead and embed the live stream of Klum’s party here as well. Don’t say we never give you anything. Crunch Network: MobileCrunch Mobile Gadgets and Applications, Delivered Daily.   |
| Meta: Bing Jingle Guy Writes Song For Students Who Sang Bing Jingle Posted: 31 Oct 2009 05:18 PM PDT
But this latest video almost had a very different tone. “I thought about writing them an anti-corporate anthem, something they could raise their tiny, furious fists to, but ultimately decided on this,” Mann tells us. Too bad, because that would be been awesome. It could have been “Another Brick In The Wall [Part 2]” for the 21st Century. Representatives for Bing also wrote us after our “torture” post to point out the backstory about the students singing the Bing jingle. Apparently, they decided to do it on their own — or rather, their teachers decided to make them do it. Still, it’s very creepy. And as a number of readers pointed out, a little bit too much like Jesus Camp (trailer below Mann’s new video and the students singing his song). Crunch Network: CrunchBase the free database of technology companies, people, and investors   |
| The Rebirth Of The Sample Sale Posted: 31 Oct 2009 04:48 PM PDT Sample sales are an amazing resource for marked down goods for both mainstream and luxury brands. Online private sample sales are picking up serious speed. Here is how they work: big designers, such as Marc Jacobs or Versace, place excess inventory on a sale site at 50 to 70 percent discounts over a several day period. The sales are private, available only to members, with upcoming sales from brands announced via emails. Products include clothing for men, women and children as well as jewelry, handbags and home accessories. You can get invites from other members or request invites via the site. Startups in the online sample sales space like Gilt Groupe, Ideeli and Hautelook are all raising huge amounts of money, growing their user base at a rapid pace and turning a strong profit. The concept has even attracted retail giants like Saks and Neiman Marcus, which are now jumping on the bandwagon to offer their own private sales. Even GSI Commerce, which previously wasn’t directly involved with selling luxury goods, is getting into the private sale business with the recent acquisition of sale site RueLaLa. It’s worth noting how sample sales have evolved in the past decade. I attended my first sample sale in 1997 in a convention center in Baltimore, where women (and a few men) were scouring for deals on clothing from J.Crew. The items were placed in huge cardboard boxes in no particular order or size breakdown. It was utter chaos, but the deals were great. Flash forward four years to my shopping life in New York City, where sample sales are a bit of a religion. At Kate Spade, I fought intense lines (waited in an hour long line in the middle of December, nearly got frostbite in my toes), pushed my way into packed fitting rooms, and found myself intimidated by the catiness of aggressive deal-seekers. At Gucci, I was asked to sign up for an hour-long “window” of shopping time. Only all the convenient times were already taken, and I was left with times in the middle of a workday. And yet I walked away from both sales with steeply-discounted designer stuff that I wouldn’t ordinary be able to afford. You get the point. Sample sales offer great deals, but highly uncomfortable situations. Gilt and other online private sales are simplifying the sample sale market. The online sample sale was originally brought to market in Europe by Vente-Privee in 2001. US companies like Gilt, Hautelook, Ideeli and BillionDollarBabes emerged a few years later with a similar online model, offering users radical discounts on overstock goods from designers. Sample sales are also proving to be a compelling market opportunity. Vente-Privee itself is on target to achieve €650 million in turnover globally this year. The price (in a possible sale) for Vente-Privee is estimated at $1.5 billion, with some sources even putting the figure at between $2 billion and $4 billion. The New York Times reports that Gilt Groupe, co-founded in late 2007 by a former eBay executive and, was able to bring in $25 million in it’s first year of operation. Gilt currently has 1.6 million members. And the startup recently raised an estimated $40 million in funding in July, which valued the company at $400 million. Ideeli, which was founded in November of 2007 and now has over one million members, is set to do $50 million in revenue this year, and the company’s CEO, Paul Hurley, expects to do $175 million in revenue next year. So why is this model successful? Well, in addition to the fact that women and men can now avoid the chaos of the in-person sample sales, the sales are now brought to the masses. So it’s no longer shoppers in New York City who can solely benefit from the steep discounts, but consumers all over the world now have access to these goods. And because the sale only takes place in short amount of time, with limited stock available, shoppers feel the urgency to actually buy the product, because it may not be available within a few hours. Most brands are also on board with the model. Since the sample sale site presents the brand in a luxurious, desirable way, via a “private” sale, designers don’t feel that these online sales are distorting the value of their brand in any way. So Gilt can get a premier designers like Marc Jacobs to sell his coveted handbags on its site for half the price. Plus, adds Hurley, the time frame of the sale ensures designers that their clothing or accessories aren’t just sitting in a bin somewhere. Hautelook even gives designers a real-time metrics dashboard that allows them to see what items are being bought, what parts of country where specific items are selling best and more. As I noted earlier, the success of this model has now led to a number of retail shops and other technology companies sniffing around to either acquire or build private shopping sales of their own. Yesterday, DailyCandy released the news of their private shopping club and even designers themselves, like Tory Burch, are holding few-day private sales online. And as we reported earlier in the month, we hear that Gilt, Amazon and eBay are all actively looking at acquisitions in the European private shopping club space. Online sample sites are drawing massive audiences, and monetizing them in a meaningful way. Of course, it’s a competitive space with every site duking it out for supply (the designer inventory) and demand (the buyers). And yet, even in recessionary times, the sample sales market seems large enough to sustain a market of startups, and keeps me looking like TechCrunch pays me a decent salary (joke!). Photo credit: Flickr/Ed Yourdon Crunch Network: CrunchBase the free database of technology companies, people, and investors   |
| Scan Your Business Cards On The Go With Business Card Reader Posted: 31 Oct 2009 03:12 PM PDT Startups like Bump Technologies, which recently got some funding, and My Name is E are trying to kill the paper business card, but even in 2009, many of us, including myself, still use business cards. The biggest hassle with business cards is getting the contact information into your address book as fast as possible — that’s where Business Card Reader [iTunes link] for the iPhone comes in. Business Card Reader scans and “reads” the picture using ABBYY’s text recognition technology and enters the data into the iPhone or iPod touch address book. Basically, you open the application, and choose either to take a new picture of a business card, or if you’ve already taken a picture, you can upload that as well. After you take a picture, or upload a picture, the application scans the business card, and after about 15 seconds, you get the address book field to edit the scanned information if there are errors. Once that’s all done, it adds the new contact into your address book. It’s really that easy. After playing around with the application for a few days and testing out different types of business cards, the accuracy, in my opinion, is about 85%. The only errors I got where if the companies name was in a logo format, and their logo had a weird font, but other then that, the app worked pretty well. If your a mobile networker, this is an app you’ll definitely like. Business Card Reader is $5.99 from the App Store, where you can buy it today. Crunch Network: MobileCrunch Mobile Gadgets and Applications, Delivered Daily.   |
| For The Future Of The Media Industry, Look In The App Store Posted: 31 Oct 2009 10:23 AM PDT The following guest post was written by Edo Segal (@edosegal). Media scarcity is dead. In the future my son will have a flash drive that he will pay $29 for that will have the capacity to hold all movies and music ever released by a major label, studio or tv/cable network. It will take 30 seconds to clone the data over the network to a friend who will pay $14.99 for a device with double capacity a year later. How does the media industry survive such a coming disruption? For many of us that have been in this game for a while, the word “convergence” harbors some shameful vibes. It conjures up many false hopes, dashed dreams and misfires. Nevertheless, I would contend that convergence is upon us and it has arrived from an unexpected delivery man: Steve Jobs. Apple has created a media consumption experience that has reduced friction to such a point that soon the consumer will not know if he is buying music, a movie or a game. The notion of App is changing. The lines between these different forms of media are quickly blurring and soon will be completely artificial. Already these distinctions are merely fossilized conventions that stem from consumers’ discovery habits. As those evolve, like learning that it is easier to go to Amazon and search to find a product than going to aisle 9 at the store. The coming confusion of the consumption experience where a user won’t care or know if what they are buying is a movie, a game or a music track presents vast opportunity. The prospects for the old media industry appear bleak, as the rest of the media industry follows the music industry into decline. Indeed in my discussions it is apparent that the smart money in Hollywood already sees the writing on the wall. While the trend will take longer, it is clear which direction the wind is blowing. The main lesson to learn is that the market will punish you if you don’t deliver the goods. But the entertainment industry has a vested interest in the success of this new type of convergence, as within it lies the secret to its continuing prosperity. The only way to block the incredible ease of pirating any content a media company can generate is to couple said experiences with extensions that live in the cloud and enhance that experience for consumers. Not just for some fancy DRM but for real value creation. They must begin to create a product that is not simply a static digital file that can be easily copied and distributed, but rather view media as a dynamic “application” with extensions via the web. This howl is the future evolution of the media industry. It has arrived from a company that is delivering the goods. Apple has made it painless for consumers to spend money and get the media they want where they want it, proving that consumers are happy to pay for media if delivered in ways that make it easy and blissful to consume. For all the criticism Apple draws on the walled garden nature of its business, it has even come around to stripping DRM and allowing users to download mp3 files. Even today if you look in the iTunes App Store you will see a myriad range of “Apps” that are just evolved ways to package media. While the traditional part of iTunes still mirrors the product taxonomy of a Tower Records, the App Store is creating a folksonomy of media products. It is where new ideas evolve, thrive and go instinctively based on market power. The App Store is where the action is. This is where evolution is unfolding as direct consumer spending spurs media development. In preparing this post, Erick asked me, “Is Apple is a media company?” I thought about that and the answer is really that Apple is what media companies are missing. The missing part of the puzzle is what made media conglomerates such juggernauts in the past. Namely, distribution. The internet is stripping them of their control over the how their products are distributed. Media companies used to be able to create scarcity merely by delaying the distribution of their products across different channels—theaters, pay-per-view, DVD, cable channels, network TV, and so on. The internet disrupts this ability to create media scarcity. It is such a huge disruption, in fact, that it threatens the fundamental profit engine of the media business. Both during my time interacting with senior management at Time Warner (where I worked at AOL after it acquired the company I founded, Relegence) and with some of my current portfolio companies that are working with the film and music industries, it is clear to me that many of the smart people running these media companies understand which way the wind is blowing. The music industry, as the one that has suffered most of the carnage, is ripest for change. Executives there are receptive to new ideas and move forward quickly, leaving me somewhat optimistic. It is also clear to me that it is hard for the industries which have not endured their level of pain to flee the golden cage of media’s past. But for those firms which rise to the occasion, there will be vast rewards. People’s hunger for good content will not subside. It will continue to grow, but so shall the unbearable ease of pirating it. The premise of extending the media experience to the cloud is a core necessity for the survival and growth of the media industry. It is the only way to for media companies to weather the coming tsunami of increased bandwidth and the ever open web. Hybrid media packaging with both files and an application layer in the cloud is core to a lucrative future. For a great example of how change is happening see what Britney did today at @BritneySpears. It was, I believe, the first time a major artist premiered a music video on Twitter. This drives people to Amazon or iTunes to buy the track but in the not too distant future it could be the start of much more than that. A complete experience will unfold that will be interactive and convert to new revenue streams. Not just a purchase of a track but of an app that pulls consumers into an experience and further promotes user engagement and virality. Media becomes a platform with a funnel of traffic and conversions to alternative revenue streams. All boosted by the frictionless billing that Apple has created in the App Store. Media executives will have realtime metrics for their success as it maps to revenue and in turn this will accelerate innovation and help redefine media. If you are a media exec and you look at your product and at the end of the day it’s a digital file that can be copied, then you have a serious problem with your format. Think of your product like a pie chart of the value you are giving the consumer. If 100% of the value is in that file, it is not a sound approach for defending the future of your business. However, if a portion of the experience is derived thorough an integration with a Web component that will yield additional value in functionality or social elements, then it will be more sustainable. There are many such examples emerging in the app store (I am T-Pain, TapTap and many more). Applications that let consumers interact with the media. Create things and share them with their friends. These will not only make the consumer the one who markets your product, but also create an unprecedented level of engagement. That level of engagement will directly map to reduction in piracy as consumers will pay for this experience and wont be able to copy it. Sell access and experiences, not media files. Guest author Edo Segal (@edosegal) has launched and sold several companies. In 2000 he founded eNow, which he sold to AOL in 2006 (after it was renamed Relegence). Today, he runs his Incubator/Investment vehicle Futurity Ventures, which recently launched a new search engine for wisdom. Crunch Network: MobileCrunch Mobile Gadgets and Applications, Delivered Daily.   |
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