The Good NET Guide

Posts Tagged ‘investment’

Argentinian social gaming company MetroGames, has just raised $5 million in series A funding from game developer Playdom. According to a release, the investment will be used to expand MetroGames’ development of games and its social gaming platform. Playdom’s CEO, John Pleasants will join MetroGames’ board.

MetroGames has over 30 games on both Facebook and its own standalone social gaming site. In the release, Pleasants said that he believes that the company will become a “big player in the social gaming market.”

It’s no secret that Playdom is eying the Facebook gaming market that Zynga dominates. The social gaming company just bought Facebook game developer Offbeat Creations. In November, Playdom raised a massive $43 million at a $260 million valuation. As we reported at that time, Playdom’s presence on MySpace was strong. Their Mob Wars game has 14 million or so users there, and the company was likely pulling in $60 million or more in revenue at that time. According to our stats from November, Playdom has 28 million monthly game users with 60% of traffic is from MySpace v. 40% from Facebook. They have twelve MySpace apps and 6 Facebook Apps.

It took almost a year, but Xobni finally released its email app for the Blackberry. It works as a standalone app integrated with the email on your Blackberry, but similar to Xobni’s Outlook plugin, it ranks your contacts by importance and pulls in social data from Facebook, LinkedIn and other places.

Along with the Blackberry app, Xobni is introducing another product which may turn out to be more important in the long run. It is called Xobni One, and it syncs your Xobni contacts in Outlook with your contacts on your Blackberry, all in the cloud. As Xobni rolls out more apps in the future, Xobni One should be able to sync contacts across those as well (very Mesh-like).

Xobni One is a way to sync your desktop and mobile contacts. If you use Outlook on your desktop at work, but Gmail on your Blackberry, Xobni One reconciles the two. And when you leave your job, your contacts stay with you. Xobni One isn’t free. It costs $4 a month or $40 a year, bundled with the Blackberry app. Keeping your contacts in sync is expensive. Doesn’t it seem that Google or Microsoft will eventually just do this for free?

Editor’s note: The most valuable employees of any technology company are the engineers and scientists, which is why everyone in Silicon Valley does whatever they can to ensure the continuous supply to this talent pool. The size of the talent pool is ultimately determined by the number of people who graduate from colleges and universities with science, technology, engineering, or mathematics degrees. The U.S. is graduating fewer and fewer scientists and engineers, causing concern in many quarters.

While many people agree this is a problem, not everyone agrees on what should be done about it. Former Intel chairman and CEO Craig Barrett is a strong proponent of priming the pump with more undergraduate science, engineering, and math students. Duke/UC-Berkeley professor (and regular TechCrunch columnist) Vivek Wadhwa thinks that better rewards for people who pursue engineering and science degrees is the right approach. So we asked Barrett and Wadhwa to debate the issue of how best to fix technology education in the U.S. Their exchange is below:

Vivek Wadhwa:

Craig Barrett is someone who I hold in the highest regard. Ever since he retired as Intel’s CEO, Dr. Barrett has made it his life’s mission to improve U.S. competitiveness. He believes that the way to do this is to teach more math and science. And he believes we need to graduate more PhDs in science and engineering.

I wholeheartedly support improvements in education and know the value that math and science skills provide. But the problems I see in U.S. competitiveness aren’t related to the numbers of engineering PhDs or scientists that we graduate. American companies are shifting R&D abroad because it makes economic sense for them to be near growth markets, and they can hire talented workers at a lower cost. It isn’t about deficiencies in American workers or a weakness of U.S. math and science education.

We are also graduating enough PhDs in science and engineering. The problem is that the majority of these graduates are foreign nationals (who are now increasingly returning home). American’s don’t consider it worthwhile to complete advanced science and engineering degrees because it doesn’t make financial sense for them to do so. Research by Harvard economist Richard Freeman showed that because salaries for scientists and engineers are lower than for other professions, the investment that students have to make in higher degrees isn’t cost-justified. Doctoral graduate students typically spend seven to eight years earning a PhD, during which time they are paid stipends. These stipends are usually less than what a bachelor’s degree-holder makes. Some students never make up for this financial loss. Foreign students typically have fewer opportunities and see a U.S. education as their ticket to the U.S. job market and citizenship. Hence, 60% of U.S. engineering PhD graduates are foreigners.

As this article from Scientific American discusses, the problems are even worse for graduating scientists.

…But today, however, few young PhDs can get started on the career for which their graduate education purportedly trained them, namely, as faculty members in academic research institutions. Instead, scores of thousands of them spend the years after they earn their doctorates toiling in low-paying, dead-end postdoctoral “training” appointments (called postdocs) in the laboratories of professors, where they ostensibly hone skills they would need to start labs of their own when they become professors. In fact, however, only about 25 percent of those earning American science PhDs will ever land a faculty job that enables them to apply for the competitive grants that support academic research. And even fewer—15 percent by some estimates—will get a post at the kind of research university where the nation’s significant scientific work takes place.

So, my argument is that if we create the incentives for American children to study math and science and to complete advanced degrees, the magic will happen. In addition to math and science, we should teach our children about world culture, geography, and global markets. In the era of globalization, these subjects are equally important. And while we fix the incentives for Americans, let’s do all we can to keep the best foreign students who come to the U.S. to study, here, so they are competing on our side.

Craig Barrett:

Economic competitiveness in the 21st Century will be quite different than in the past. With the free flow of information, capital, and people, economies will have to look for new comparative advantages. Most observers of this topic conclude that there are only three things that a country can do to increase their relative competitiveness and provide for an increased standard of living for their citizens. Countries have to invest in the education of their work force (smart people), they have to invest in research and development (smart ideas) and they have to provide the right environment to let smart people get together with smart ideas and create new products, new businesses, and new services. The most fundamental of these three issues is education. Historically the standard of living or per capita income has tracked closely with the level of education of the work force—as education lets workers add value to what they do and as the economy grows the standards of living increase.

Looking forward every major economy has identified the general areas that will drive innovation and economic growth. Japan, the US, and the EU have all listed those technologies (nanotech, photonics, new materials, micro electronics, alternative energy, biotech, etc) that will be key for development, productivity improvements, and growth. All of these areas have the common foundation of science, technology, engineering and mathematics (STEM). Hence it is straightforward to conclude that work force expertise in STEM will be a determinant of economic growth.

If we look at the US for a moment we can make several observations about the education of our current and future work force.

1. US kids on average do poorly in mathematics, science and problem solving when compared to their OECD peers;
2. Fewer US kids choose to major in the hard sciences and engineering each year (most of our engineering graduate students are in fact foreign nationals).
3. The current 25 year old generation will be less well educated (defined by college graduation rates) than the 45 year old generation
4. Most OECD and emerging economy countries are increasing their college (and STEM) graduation rates

So in contrast to the importance of STEM education for economic performance in the 21st Century we see the US moving in the opposite direction. Certainly our universities are still top ranked in the world in STEM but increasingly the graduates of those universities are foreign nationals who are often choosing to return home to pursue their professional careers. And we are producing no more STEM graduates than we did decades ago.

If the US is really serious about competing in the 21st Century economy we will have to decide to compete. This simply means that you have to create the work force (smart people), invest in R&D (smart ideas) and make sure the environment is attractive to investment in innovation (do something about tax rates, make it easier to form corporations, provide incentives to invest in R&D and make capital investments, etc). Otherwise you will see the continuous flight of capital and jobs to regions of the world where governments have made the environment more attractive. This is not a simple issue of wage rates—corporations chase after the best possible work force in areas where the total cost is most attractive and often the total cost is much more heavily weighted by corporate tax rates and incentives, not wage rates.

STEM education is key for our future. We need a major upgrade in our K-12 education to produce high school graduates who understand and appreciate STEM.

We need more undergraduates majoring in STEM for the jobs of the 21st Century. And we need more STEM graduate students to drive those industries that are key to our future. As a measure of how rapidly things are changing with time, it used to be that many STEM Ph.Ds turned right around and went after faculty positions in our universities. Today, STEM Ph.Ds are the entry level education requirements to get into the engineering and research laboratories of the successful tech corporations in the US, like Microsoft, Intel, Cisco, IBM, etc. It is also certain that not every STEM graduate is going to pursue a limited career in STEM. STEM education is a great introduction to many other professions – the basis of STEM education being problem solving means that this education is a great entry to other jobs. In fact the most common educational background of the Fortune 500 CEOs is engineering.

So at a time when the rest of the world is gearing up for competition let’s refocus the US to do the same. That is unless you believe our future is in low value add services or manufacturing, investment banking, tort lawyers or asphalt ready construction jobs. Somebody has to create some wealth if you want your economy to grow.

Vivek Wadhwa’s Rebuttal:

Again, I wholeheartedly agree that we need to improve K-12 education and I agree about the importance of STEM education. The question is, how do you motivate American children to enter fields like science and engineering that are harder than others to learn, don’t provide the economic rewards, and that aren’t considered “cool”? We can’t force our children to do PhDs in math.

As the article from Scientific American showed, many engineering and science PhDs can’t even get jobs – in academia or industry. This is after they have worked for years at ridiculously low wages as researchers or postdocs. Those that do get jobs don’t ever make up for the financial sacrifice they have made. When American children choose to study science or engineering, their friends call them geeks or nerds – they are made to feel inferior. Their Indian and Chinese counterparts are held in high regard by society and end up at the top of the social ladder. Indian and Chinese engineers and scientists are often national heroes. Here, our kids idolize football players and rock stars.

We can’t also just tell our children that the nation’s competitiveness and standard of living depends on them making sacrifice and completing advanced degrees in math and science. They won’t care. We should improve the K-12 education system as you suggest. Our corporations should also invest in workforce development – which they generally don’t. We should also provide tax breaks for research as you say. And we should fix our university research system (I have written about the big problems with this).

The issue I am highlighting is that even if we did all of the good things you suggest, this would not fix the problem of American children not being motivated to become scientists and engineers. My top students at the Masters of Engineering Management Program at Duke University still vie for high-paying investment banking jobs; they don’t become engineers. It is the same with our top PhDs in math; they become quants at investment banks. Their talent ends up being used by investment banks to find new ways of bilking the financial system.

We need to create the excitement about science and engineering at the national level and motivate our best and brightest to become engineers and scientists. And we need to make it worthwhile financially for them to help our country stay competitive and to solve the problems facing our planet. This is as much a marketing problem as it is an investment problem. An example of a way to fix the marketing problem is what National Academy of Engineering President, Charles Vest, proposed with the Grand Challenges for Engineering program. But this is a tiny first step. We need to do a lot more.

Craig Barrett’s Rebuttal:

Let me respectfully disagree with one point Vivek makes and then give some suggestions on how to overcome his second issue.

First, this is not a financial compensation issue. If it were then every kid who goes to college would choose to major in engineering because a BS in engineering (almost any subject) commands the highest salary of any university graduate. Most kids don’t major in engineering because they don’t have the interest, the aptitude, or they like some other major more. Our young college graduates do not chase the dollar; they tend to follow their interests. In addition, when I look at the unemployment statistics, engineers are usually amongst the highest employment professions in the country. Certainly the percentage of NFL or rock star wannabes or business administration majors or medieval history majors on unemployment is much higher than that for engineers. So can we please move away from the simplistic argument that STEM doesn’t pay?

In addition if you look at graduate school and the graduate Ph.D who spends years working as a Post Doc angling for a teaching position at a prestigious university you simply cannot do an ROI analysis on his or her investment to land the faculty position and conclude that no one will be a Post Doc. The individual is chasing that faculty position because that is what they really want to do. Just like an aspiring actor spends years doing bit parts to finally land the big role. You know that because the end point, the faculty position, is not the highest paid option for the Ph.D. He or she can make more money in the private sector and probably have greater resources (capital facilities and research dollars) to pursue interesting problems. The Post Doc pursues their interest precisely because that is what they are interested in. As there are many more Post Docs than faculty positions available we have to conclude that Post Docs are Post Docs because they want to try to become faculty members and that Post Docs do not represent an inherent limitation or barrier to people trying to obtain a Ph.D in STEM. The private sector has a strong appetite for STEM Ph.Ds—just look at the hiring practices of the major corporations.

The real barrier to pursuing degrees in STEM is that we have almost a perfect filter in place in K-12. For a student to want to major in STEM in college they have to exit high school with a strong mathematics background. That means that they need to have a good math teacher in nearly every grade (in addition to having a good physics, chemistry, and biology teacher). We know that about 1/3 of all math and science teachers in K-12 are not certified in their subjects and probably do not do a good job educating and motivating their students. If you assume for a moment that you need 12 good math teachers in a row to exit high school being proficient in math then the calculation of the probability of such an event happening is simple: 0.67 raised to the 12th power shows you what a perfect filter the K-12 system is.

So how about a national effort to get more STEM content majors into K-12 teaching? A few exciting programs have started in this space (UTeach out of Texas, Teach for America, the revamp of the education school at ASU). All we need to do is start recognizing that hiring content experts in K-12 is more important than hiring someone who has studied education pedagogy for 4 years. Just imagine how many folks interested in STEM want to take all those School of Education classes to get their teaching certificate.

On to the point where I want to support Vivek, i.e., the need to get more kids interested in STEM during K-12. This can happen in the class room with good teachers (can you imagine a PE teacher doubling as a math teacher inspiring kids to want to pursue math?) and it can happen outside of the class room. For example I just spent yesterday afternoon in Phoenix at the FIRST Robotics Championship competition—the energy, the enthusiasm, the application of STEM was fantastic. But only about 15,000 kids nationwide participate in this competition. Just suppose we had a FIRST team at every school in the country. Next week I am at the Intel Science Talent Search (the Nobel equivalent for high school students doing research). The 40 finalists will be doing research better than my Ph.D thesis topic. But only about 1500 kids a year enter this competition—what if we had 15,000? Or 150,000?

This is where we need to mobilize the public and private sectors to improve. This is where we can catch the imagination of the next generation and turn them into candidates for those STEM Ph.Ds. There is sub critical mass working in this area – it just needs to be expanded. Suppose we organized the top 200 STEM oriented companies in the US and let them work at the local level to make FIRST robotics, science fairs, and computer club houses really happen across the US. Then we could overcome the tired arguments that our society doesn’t value STEM. There is a movement to make this happen right now. The best thing we could all do is throw our weight behind this effort.

Yesterday brought the news that AOL sold Buy.at, the affiliate marketing network it bought in early 2008, to UK network Digital Window. AOL acquired Buy.at for a rumored $125 million two years ago. Today, AOL filed a 10-K report that revealed that AOL only sold Buy.at for $17 million, taking a hit of a whopping $108 million.

Another fascinating tidbit in the filing is related to hyperlocal news site Patch. Patch, which currently offers hyperlocal news for 37 small towns and communities in New York, New Jersey, Massachusetts, Connecticut and California, was acquired by AOL in June of last year. According the the 10-K, AOL plans to invest up to $50 million in hyperlocal news site Patch during the remainder of 2010. And it’s been reported that Patch will roll out to “hundreds” of communities in the future.

According to the filing, Patch was bought by AOL for $7.0 million in cash. AOL’s CEO Tim Armstrong, had previously invested $4.5 million in Patch back in his Google days via his private investment firm Polar Capital. Armstrong waived his right to receive any money beyond his initial investment back from the investment, accepting the return of his capital in AOL common stock. Armstrong then returned the $4.5 million back to Polar Capital in the form of AOL shares.

We know that Armstrong is not only bullish on niche content but is also looking for AOL to become a content powerhouse. The company has even developed its own CMS, Seed, which is a content machine that aims to redefine journalism. And AOL just bought internet video company StudioNow, which was integrated into Seed, to boost its video content on editorial sites.

Hulu investor Providence Equity Partners is pumping $50 million into a new online video company set up by Chinese Internet search giant Baidu.

The news comes roughly 7 weeks after Baidu confirmed plans to established a new independent company to provide licensed, advertising-supported online video content to Chinese Internet users.

Although it isn’t yet explicitly confirming that the name of the new company will be Qiyi in the press release about the investment, Baidu says it has registered the domain name qiyi.com for the venture.

Reuters broke the news about a possible forthcoming investment by Providence Equity Partners in the new venture on January 5, citing local news sources who reported that the new joint venture company had received about $60 million in private equity funds, with Baidu investing about $10 million into the firm.

If those reports were accurate, that means Qiyi only has Baidu and Providence as its backers for now. Baidu has also said that it will continue to maintain majority ownership in Qiyi.

According to eMarketer, China will have 518 million Internet users in 2010. The size of the country’s online video market was approximately 162 million yuan ($23.73 million) in Q3 2009, according to data from research firm Analysys International, and analysts expect sales to triple in the coming years.

Update: more context on the space is available here (via comments).

Baidu stresses that it will work with regulators to ensure the “lawful distribution” of professionally produced media and entertainment content on the Internet.

From the About page:

Qiyi (www.qiyi.com) is an independent operated video website created by the world’s largest Chinese search engine Baidu Inc(BIDU.O). Qiyi intends to be a high-definition online video platform, offering the latest, the most complete, and most professional high-quality licensed content to users for free.

Under the premise of orientating correct public opinions and strictly executing the government policy and regulation, Qiyi provides diversified licensed video content and launches various channels for hit TV shows, movies, documentaries, cartoons, music, variety shows, etc., to fulfill the increasing needs from the users and to enriches customers’ cultural life.

According to the customer-oriented principle of Baidu, Qiyi aspires to reach the highest satisfaction of customers, and strives for perfection of exclusive content, reasonable products and viewing experience.

Meanwhile, Qiyi will strictly abide by copyright laws and administrative regulations, to take copyright protection measures to protect the legitimate rights and interests of copyright holders. Qiyi copyright of all content through legitimate channels such as procurement obtained.

Qiyi adopts meanwhile a series of measures to protect the legal rights of content providers and follows strictly the copyright-related laws and regulations. All videos on Qiyi are from legal channels.

Qiyi makes profit from advertisers on the websites and will also committed to developing other profit models supported by both of the users and the advertisers. The licensed online videos are totally free for internet users.

Qiyi keeps making efforts in the future operations to be the favorite video viewing platform of Chinese internet users’, and meanwhile to spread the advanced socialism culture by undertaking its social responsibility as an outstanding corporate citizen. Qiyi is playing a positive role in developing a harmonious society.

It’s just like Hulu, only with governmental censorship!

(Via press release)

Local search is heating up, especially on advanced mobile phones, where augmented reality apps and immersive photo-realistic apps show great promise. EveryScape, a startup in Waltham Massachusetts which has built out immersive 3D photoscapes for 20 cities, raised a $6 million Series C funding. The investment was led led by SK Telecom Americas, a subsidiary of the Korean telecom giant, which will help EveryScape expand into Asia.

Existing investors Draper Fisher Jurvetson and Dace Ventures also participated. EveryScape’s previously raised a $7 million Series B in March, 2008 and a $4.5 million Series A in 2005.

Up until now, EveryScape has been stitching together navigable street photos into 3D environments paired with Google Maps. Of course, Google Maps does much the same thing with its Street View feature. EveryScape, however, can take the viewer inside buildings. Businesses can pay to be listed and called out in the street view mode, and even pay for EveryScape to create those indoor 3D tours.

This sort of experience becomes much more useful on a mobile phone when you are trying to find a business or some other point of interest when you are standing on the street nearby. Still, it’s tough to compete against Street View on Google Maps, not to mention similar efforts on Bing. That is why EveryScape is taking partner-driven strategy,” says CEO jim Schoonmaker. He confirms that EveryScape’s relationship with SK will go beyond the investment, but can’t share any details beyond that. He also says more partnerships are on the way, and claims to have a cost advantage over Google and Microsoft in creating these immersive photo-based virtual environments because as a startup EveryScape has been forced to use off-the-shelf equipment. Signing up more partners will be the key to its survival.

Social music player TuneWiki is on a funding roll. The startup just raised $7 million in Series B funding from Motorola Ventures, Intellect Capital Ventures, HillsVen Capital, Novel TMT and Benchmark Israel. Today, TuneWiki is announcing that NOCOMO Capital, the venture arm of Japanese mobile giant NTT DOCOMO, has made an undisclosed investment in the company.

TuneWiki says it will use the investment for to build new products and expand its current mobile and web platforms.: TuneWiki is an app that brings music streaming, a lyrics database and music videos from YouTube to one social, customizable media player both on the web and to mobile devices. In the coming year, TuneWiki plans to launch a mobile game and significant feature upgrades to the TuneWiki social media player.

Of course, the NTT DOCOMO investment will also mean further expansion into the Japanese mobile markets.Rani Cohen, TuneWiki’s CEO, says that because of of the popularity of Karaoke applications in Japan, TuneWiki’s lyrics to music could gain traction in the country. TuneWiki boasts apps for iPhone, Android, BlackBerry and Nokia handsets.

TuneWiki is also appointing a new COO, Lawrence Goldberg, who was the former COO of Activision. Another Activision alum Michael Steiner, who worked on GuitarHero at the gaming company, is joining TuneWiki as director of marketing.

Considering just how similar the new HTC Desire is to the not-quite-as-new Google Nexus One (read: very, very similar), I wasn’t expecting to walk away from my hands on session with my mind too blown. I mean, it’s essentially just a Nexus One with HTC’s Sense UI and an optical trackpad, right?

Right - and that’s exactly why it’s amazing.

Kiva is p2p-lending site that facilitates loans between lenders in wealthy countries and entrepreneurs in developing countries. Now a new startup aims to bring a simialr model to startups in the developed world but with an investment focus. The idea here is to fix the current inefficiencies of private seed funding for web and mobile companies, especially in markets outside of the hothouse that is Silicon Valley (i.e. Europe and Asia).

Grow VC is a new community funding model for technology startups. Here’s how it works: Grow VC will pool 75 per cent of membership fees into a community fund that gets invested back into ‘promising startups’ which are members of the platform. The fund is managed by Grow VC but all the investment decisions are left to members who determine how to invest their portion of the fund into other startup companies that they feel have the most potential. The most successful decision makers get financially rewarded when the community fund begins earning a return on investment. So, if you promote the best companies you make moola.

Joining Grow VC, and the basic features such as building a person profile, are free. Premium features come with subscriptions ranging from $20 to $140 per month, depending on how much money the startup company is seeking or how much the investor is looking to invest. For unlimited service investments, the monthly subscription fee is $90 per month. The fund is aimed at startups that need $10,000 to $1 million USD.

Continuing his series of Davos interviews, Michael talks to Slide CEO and founder Max Levchin in the video above. Levchin discusses the ” shift from advertising to virtual goods” and reveals that most of Slide’s revenues now come from sales of virtual goods, whereas it was the reverse a year ago. Slide makes some of the most popular apps on Facebook and other social networks, and the fact that it is no longer focussed on advertising says a lot about the prospects for social ads. Last year was a huge transition for Slide, made possible by the fact the company has raised a total of $78 million.

Levchin is now steeped in the dynamics of virtual goods and how to get people to pay for them, which he discusses at length in the interview. He makes a distinction between buying virtual goods as a “consumption decision” (because you want to level up in a game immediately, for instance) and an “investment decision” where you spend to improve your standing in a community. He believes there are “less diminishing returns” in getting consumers to make see spending on virtual goods as an investment rather than just consumption.

Levchin also says that Slide is working on the ability to allow consumers to create (and sell) their own virtual goods. You can also watch Mike’s other Davos interviews with Brightcove CEO Jeremy Allaire, Facebook COO Sheryl Sandberg, MySpace CEO Owen van Natta, Salesforce CEO Marc Benioff, Russian DST investor Yuri Milner, and a run-in with Michael Dell.

Transcript courtesy of PhoneTag:

Mr. MIKE ARRINGTON: Mike Arrington here, I’m here with a very tired Max Levchin, CEO and founder of Slide. How are you?

Mr. MAX LEVCHIN (CEO, Founder of Slide): Good.

Mr. ARRINGTON: You’re wearing a suit today. You never wear suits.

Mr. LEVCHIN: I never wear suits.

Mr. ARRINGTON: Kind of a world economic forum thing.

Mr. LEVCHIN: It is.

Mr. ARRINGTON: No sleep at all? You’ve been up late working?

Mr. LEVCHIN: Up late working but some sleep. Just the sleep depriviation several days that’s what gets to you.

Mr. ARRINGTON: It adds up.

Mr. LEVCHIN: Yeah.

Mr. ARRINGTON: So, tell me, I haven’t talked to you in a while, tell me about Slide, how things are going and where it is going.

Mr. LEVCHIN: We’re doing well. We’ve evolved as a business in a pretty cool way. I think a year and a half ago we made, all the money that we made is from advertising. At this point, we make almost all the money that we make through sales of contents to consumers which is a pretty huge transformation for a business at our scale and is a relative success. We have expanded our product line. We’ve realized that some products weren’t going to last so we changed them. But, the most interesting is really the shift from advertising to virtual goods. We’re going to do that more. Probably the most interesting wrinkle in virtual goods that we have is, we also think once we enable our users to create the goods as opposed to us which we believe in a scalable model and we’re going down that road pretty well.

Mr. ARRINGTON: You always sell toward cash. You don’t do much in a way of offers other than some stuff with flowers or something like that, right?

Mr. LEVCHIN: We’ve done exactly one offer.

Mr. ARRINGTON: The one with flowers?

Mr. LEVCHIN: Yeah. Actually it was pretty cool. It was a… strange people…

Mr. ARRINGTON: You know that guy whispered “thank you” in my ear because he was filming us, he was filming me filming you. I wonder who it was.

Mr. LEVCHIN: That’s very meta.

Mr. ARRINGTON: He was behind me. Is that what he’s doing, he’s filming me filming you?

Mr. LEVCHIN: He’s doing more than that, probably more than that. Anyway, yes we’ve done exactly one offer type of thing which was really demand discovery as opposed to demand generation. Demand generation is very tricky. It’s really easy to create from demand generation to lead generation which is an easy thing to drive towards pretty unethical behavior is a slippery slope. Demand and discovery is a lot easier to deal with but it’s also a lot harder to execute. And so, we’ve done one experiment (unintelligible).

Mr. ARRINGTON: If you buy flowers for somebody…

Mr. LEVCHIN: Yeah, if you’re getting something already.

Mr. ARRINGTON: But you didn’t like it, you didn’t like the financial results. You felt it was a slippery slope or…

Mr. LEVCHIN: No, no, from the moral compass perspective, it was pretty -

Mr. ARRINGTON: It’s clearly okay?

Mr. LEVCHIN: Yeah, absolutely. In fact I would recommend it to others. This is neither something I’m ashamed of nor do I think it’s a bad business; it’s just hard to do well. If you’re looking for scalable direct to consumer sales behavior where you’re making things or somebody’s making things and they’re selling through the users and it’s a smooth process creating a really nice smooth demand discovery is hard because then you say, alright, well, it’s Mother’s Day, so we should do flowers. It’s pretty manual labor. It ultimately winds up being about as lucrative as just direct sales merchandising. So, ultimately it’s neither cannibalistic nor massively mass improvement over just direct sales which offers certainly is massive improvement because all sorts of people had said, I will never spend money, pretend spend, through that, which is how you wind up on a slippery slope.

Mr. ARRINGTON: What percentage of customers can you convert to giving you money – single digit, couple percent, five percent?

Mr. LEVCHIN: I think we are well within the industry average. So, it’s – between one and three percent. I think 3 percent in the Western markets is fantastic and I always certainly say it’s fantastic for us. Below half percent is what most people I think can get to and we tend to float substantially better than the lowest and well within the best.

Mr. ARRINGTON: What happens to the other 97 or whatever percent? Are they there to get other users and to have some ads reserved? Is that basically their use?

Mr. LEVCHIN: We don’t do much ads or in fact, we’ve really cut down our advertising efforts by quite a significant margin. Not that we don’t think advertising is a bad business. We do think that commodity advertising is a bad business. So, if you’re in a world of just click on this banner and just get more, it’s hard to get privacy well accounted for. So, a large scale pure reach, just give me anyone or even some modest marketing, low price CPM advertising I think is a declining business in general, but certainly within the world of social networks. Because, in that case, the only differentiating feature is reach and reach is firmly in the hands of Facebook and MySpace. So, at any one time, the only way you can compete if you’re a social advertising network or platform or whatever, is on price. And that is just – that’s another slippery slope I’d like to not be on.

Now, slipping around to a high-end or brand advertising where the audience is uniquely predisposed towards the brand or towards the transaction being promoted, that’s an excellent business model. You look at, before the current, our times, the mortgage refinancing ads, I think, went for like $60 CPM and still probably go for similar amounts of money on sites that have to do with personal finance. Same exact ads on the front page of some random gaming portal will probably go for very little because they’re just pure (unintelligible). So, having the extremely targeted advertising is still a lucrative business even on social networks. An even better version of this and which is what we’re interested in is what is essentially product placement. If you can work a brand successfully into the narrative of your product, then it’s really cool. Then people actually take the brand up and say, my positive experience in your product is directly connected and influenced by this brand and that worked great.

Mr. ARRINGTON: So, in a virtual world, having a can of Coca-Cola should have been an ad sitting and having fun.

Mr. LEVCHIN: If Coca-Cola is listening, I’d love to have their cans in my virtual world.

Mr. ARRINGTON: Do you find, this is a little off topic, back to the old topic. Do you find that users that pay, their friends are more likely to pay? Or that statistically they’re only three percent likely to pay? How do you find those ones that actually pull their wallet out?

Mr. LEVCHIN: I think the best predictor is their commitment to the product. You can predict whether they will or will not pay both to backing up for a second, there are two ways we think of virtual goods and this is possibly leading to us but I think it’s one good way to split up.

One is the consumption decision, one is an investment decision. The consumption decision is if you’re playing a game and you’ve got to level up and you just can’t wait another 24 hours for your crops to mature, for your fish to be sold or whatever, and so you pull out a dollar and say, oh look, I used to be level 15, now I’m level 16 which is great. It works and it is a true consumption decision. It is like watching a movie, you don’t really expect anything in return but you had a lot of fun.

Investment decision is where you are involved in a proto community or perhaps a real community and their conversations, they’re not necessarily on the game topic or a topic of whatever the community was originally formed around, where your standing in the community matters, where you have a voice where people care for who you are and how you differ from others and most of all, you care. If you’re really committed, you start caring a lot. In fact, you’re willing to invest in your standing and personality within that community which is the other way in a virtual-based goods become relevant where your avatar or persona or whatever term is somebody actually are willing to actually invest in cash. The ones I’m most interested in are the latter because they are ultimately a more scalable model in a sense that people are less likely to say diminishing returns. I graduate from level 15 to 16 for a dollar, grow to 500 to 501 for a dollar. Why would I possibly give out in two to 503? And some people are very happy to keep going but on average, I believe, there’s diminishing returns which just has to be. Most people don’t level up to over 500 on anything.

On the other hand, in a real world, as people gain standing and status in their community, they actually do invest more in it. You can join in a parent teacher’s association, next thing you know, you’re donating money to it and helping with the after-school activities. And that’s very possible. So, the investment type, virtual goods I think are probably somewhat more sustainable although they do have their shelf life and their lifespan. The predictor of that behavior is commitment. Will you join the PTA? Are you going to go post on the feedback forum or are you going to help others get better at this game? So, that’s what we found to be the best way to predict that. The thing that you first referred to, my friend is spending money, maybe I should spend money follows naturally from that second type of behavior. It also does sort of follow from the first type of behavior but that’s competitive. You’re level 15, I’m still level 14, if I got to beat you, I got to beat you. I think most people in social gaming or social entertainment in general are on average not as competition driven as they are driven by other means. And community is one of them but also escapism, the desire to have complete control over the process to understand in real life but don’t have full control in their own world, e.g. people play – there’s farming games I think in a big way because it’s something I understand, is very complex and they could never accomplish in the real world, but having a farm that sits there and just produces revenue even if it’s completely virtual is pretty awesome, you can control it.

Mr. ARRINGTON: How long does it last, those types of games? How long does the user last, a month on average, less?

Mr. LEVCHIN: I think it really depends on the game. But there are several different retaining factors. One is content. If the game designer produces more content than he can consume per month, some fraction of the people will say more quests, more tests, more challenges, more whatever and they will be compelled by it. There are diminishing returns there as well. At a certain point he will say – well, this challenge is kind of like the one from last month and I already solved that one. The other retention factor obviously is the community. If you play with your friends and they’re still playing, you’ll probably have higher odds of playing. There are lots of other things and they all add up to some sort of retention curve. That retention curve, it drops down to zero within 30 days then you have a – 30 days of their attention. I think it really – I will only go as far as claiming that from most products their retention curves are not too similar. I mean there are products that have incredibly high retention, and incredibly low retention.

Mr. ARRINGTON: So what about this year for you? What’s going to happen to Slide this year? Any new big product launches that you’re excited about, you want to talk about now? Raising good money that you want to talk about? This is the one like (unintelligible) easy questions.

Mr. LEVCHIN: Right. There are some product launches that I’m excited about, that I’m not willing to talk about.

Mr. ARRINGTON: New games and applications.

Mr. LEVCHIN: Yes.

Mr. ARRINGTON: And this is all still Facebook, MySpace focused? Looking at mobile at all?

Mr. LEVCHIN: On mobile, there are several questions in there so I’ll choose which one I want to answer. The mobile view that we have is as follows. It’s a fantastic extension of a committed community or committed group that exists on the web, and whether it is from the Facebook or MySpace or on any destination site or – it doesn’t really matter that much. But given the distribution cost and dynamics on the web versus the same on mobile, makes a great deal of sense to tell someone to take your favorite game with you versus discover your favorite game on mobile even if mobile is in some cases certainly is more compelling or more lucrative or whatever, just the footprints that it needs to get to, to become financially interesting is much easier achieved as a buyer instead of the people from a Facebook game extending it to their iPhone than a hundred percent of people discovering it through the App Store, for us. I think there are many companies that have mastered the App Store distribution to the point where they can get to a similar financial footprint, but I don’t think that’s a core competence for Slide. Probably it isn’t likey to change this year although hoping to do that one if I can figure out how to do it, I’ll definitely try.

Mr. ARRINGTON: Anything else?

Mr. LEVCHIN: Pretty exciting here for us. I think so. A lot of really interesting maturation that will happen in the overall industry. I think many different assumptions will be challenged.

Mr. ARRINGTON: You want to expand on that a little bit, like which assumptions?

Mr. LEVCHIN: Assumptions of – assumptions of what it means to have a successful social app and possibly the assumption of what categories are going to be successful in social apps. I think this may be the year where things start becoming more blurred about what’s a game, what’s not a game.

Mr. ARRINGTON: Interesting.

Mr. LEVCHIN: How do I delete that part? It’s way too vague, even I think it’s vague.

Mr. ARRINGTON: It’s vague but it sounds like it’s begging to be unpacked a little more. For instance, are you talking about taking Slide social tools and extending them over to platform to other things? By things I mean other apps for other people, other sites, other…

Mr. LEVCHIN: I think what we’re trying to get to is in effect a platform where some of the content is created by the users and…

Mr. ARRINGTON: Yeah, they create a shirt and then other people sell it or something.

Mr. LEVCHIN: Or they create a shirt and then they sell it.

Mr. ARRINGTON: Right. But even other people could theoretically.

Mr. LEVCHIN: Sure.

Mr. ARRINGTON: I mean, you know, I’d love to have, you know, there’s virtual gifts on Facebook, occasionally I give one. I’d love to be able to create my own gift and give it. It would be really cool if it was so popular other people will give it. That’s the kind of thing you’re talking about?

Mr. LEVCHIN: That’s certainly a big part of what we think we’re going to do. And if you look at the historic expertise of our company, it is in the tool-making skill of enabling consumers making something out of practically nothing. And I don’t mean to disrespect the occasionally fabulous but mostly just nice and sentimental pictures that people have but combined with our now five-year-old slideshow product…

Mr. ARRINGTON: Has it been that long?

Mr. LEVCHIN: Maybe it’s been four-and-a-half years, four years, but it’s been around and it’s helped at this point millions of people who go from regular expected to pretty awesome and I think in some cases that pretty awesome becomes financial lucrative. So, we try to think of ourselves as enablers of that.

Mr. ARRINGTON: Right. That sounds like that’s all you’re going to give me right now. You’ve been generous with your time. I’d love to hear more about these when you guys are ready though.

Mr. LEVCHIN: Sure.

Mr. ARRINGTON: Thanks, Max.