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December 12, 2018
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The economics and tradeoffs of ad-funded smart city tech

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In order to have innovative smart city applications, cities first need to build out the connected infrastructure, which can be a costly, lengthy, and politicized process. Third-parties are helping build infrastructure at no cost to cities by paying for projects entirely through advertising placements on the new equipment. I try to dig into the economics of ad-funded smart city projects to better understand what types of infrastructure can be built under an ad-funded model, the benefits the strategy provides to cities, and the non-obvious costs cities have to consider.

Consider this an ongoing discussion about Urban Tech, its intersection with regulation, issues of public service, and other complexities that people have full PHDs on. I’m just a bitter, born-and-bred New Yorker trying to figure out why I’ve been stuck in between subway stops for the last 15 minutes, so please reach out with your take on any of these thoughts: @Arman.Tabatabai@techcrunch.com.

Using ads to fund smart city infrastructure at no cost to cities

When we talk about “Smart Cities”, we tend to focus on these long-term utopian visions of perfectly clean, efficient, IoT-connected cities that adjust to our environment, our movements, and our every desire. Anyone who spent hours waiting for transit the last time the weather turned south can tell you that we’ve got a long way to go.

But before cities can have the snazzy applications that do things like adjust infrastructure based on real-time conditions, cities first need to build out the platform and technology-base that applications can be built on, as McKinsey’s Global Institute explained in an in-depth report released earlier this summer. This means building out the network of sensors, connected devices and infrastructure needed to track city data. 

However, reaching the technological base needed for data gathering and smart communication means building out hard physical infrastructure, which can cost cities a ton and can take forever when dealing with politics and government processes.

Many cities are also dealing with well-documented infrastructure crises. And with limited budgets, local governments need to spend public funds on important things like roads, schools, healthcare and nonsensical sports stadiums which are pretty much never profitable for cities (I’m a huge fan of baseball but I’m not a fan of how we fund stadiums here in the states).

As city infrastructure has become increasingly tech-enabled and digitized, an interesting financing solution has opened up in which smart city infrastructure projects are built by third-parties at no cost to the city and are instead paid for entirely through digital advertising placed on the new infrastructure. 

I know – the idea of a city built on ad-revenue brings back soul-sucking Orwellian images of corporate overlords and logo-paved streets straight out of Blade Runner or Wall-E. Luckily for us, based on our discussions with developers of ad-funded smart city projects, it seems clear that the economics of an ad-funded model only really work for certain types of hard infrastructure with specific attributes – meaning we may be spared from fire hydrants brought to us by Mountain Dew.

While many factors influence the viability of a project, smart infrastructure projects seem to need two attributes in particular for an ad-funded model to make sense. First, the infrastructure has to be something that citizens will engage – and engage a lot – with. You can’t throw a screen onto any object and expect that people will interact with it for more than 3 seconds or that brands will be willing to pay to throw their taglines on it. The infrastructure has to support effective advertising.  

Second, the investment has to be cost-effective, meaning the infrastructure can only cost so much. A third-party that’s willing to build the infrastructure has to believe they have a realistic chance of generating enough ad-revenue to cover the costs of the projects, and likely an amount above that which could lead to a reasonable return. For example, it seems unlikely you’d find someone willing to build a new bridge, front all the costs, and try to fund it through ad-revenue.

When is ad-funding feasible? A case study on kiosks and LinkNYC

A LinkNYC kiosk enabling access to the internet in New York on Saturday, February 20, 2016. Over 7500 kiosks are to be installed replacing stand alone pay phone kiosks providing free wi-fi, internet access via a touch screen, phone charging and free phone calls. The system is to be supported by advertising running on the sides of the kiosks. ( Richard B. Levine) (Photo by Richard Levine/Corbis via Getty Images)

To get a better understanding of the types of smart city hardware that might actually make sense for an ad-funded model, we can look at the engagement levels and cost structures of smart kiosks, and in particular, the LinkNYC project. Smart kiosks – which provide free WiFi, connectivity and real-time services to citizens – have been leading examples of ad-funded smart city projects. Innovative companies like Intersection (developers of the LinkNYC project), SmartLink, IKE, Soofa, and others have been helping cities build out kiosk networks at little-to-no cost to local governments.

LinkNYC provides public access to much of its data on the New York City Open-Data website. Using some back-of-the-envelope math and a hefty number of assumptions, we can try to get to a very rough range of where cost and engagement metrics generally have to fall for an ad-funded model to make sense.

To try and retrace considerations for the developers’ investment decision, let’s first look at the terms of the deal signed with New York back in 2014. The agreement called for a 12-year franchise period, during which at least 7,500 Link kiosks would be deployed across the city in the first eight years at an expected project cost of more than $200 million. As part of its solicitation, the city also required the developers to pay the greater of either a minimum annual payment of at least $17.5 million or 50 percent of gross revenues.

Let’s start with the cost side – based on an estimated project cost of around $200 million for at least 7,500 Links, we can get to an estimated cost per unit of $25,000 – $30,000. It’s important to note that this only accounts for the install costs, as we don’t have data around the other cost buckets that the developers would also be on the hook for, such as maintenance, utility and financing costs.

Source: LinkNYC, NYC.gov, NYCOpenData

Turning to engagement and ad-revenue – let’s assume that the developers signed the deal with the expectations that they could at least breakeven – covering the install costs of the project and minimum payments to the city. And for simplicity, let’s assume that the 7,500 links were going to be deployed at a steady pace of 937-938 units per year (though in actuality the install cadence has been different). In order for the project to breakeven over the 12-year deal period, developers would have to believe each kiosk could generate around $6,400 in annual ad-revenue (undiscounted). 

Source: LinkNYC, NYC.gov, NYCOpenData

The reason the kiosks can generate this revenue (and in reality a lot more) is because they have significant engagement from users. There are currently around 1,750 Links currently deployed across New York. As of November 18th, LinkNYC had over 720,000 weekly subscribers or around 410 weekly subscribers per Link. The kiosks also saw an average of 18 million sessions per week, or 20-25 weekly sessions per subscriber, or around 10,200 weekly sessions per kiosk (seasonality might even make this estimate too low). 

And when citizens do use the kiosks, they use it for a long time! The average session for each Link unit was four minutes and six seconds. The level of engagement makes sense since city-dwellers use these kiosks in time or attention-intensive ways, such making phone calls, getting directions, finding information about the city, or charging their phones.   

The analysis here isn’t perfect, but now we at least have a (very) rough idea of how much smart kiosks cost, how much engagement they see, and the amount of ad-revenue developers would have to believe they could realize at each unit in order to ultimately move forward with deployment. We can use these metrics to help identify what types of infrastructure have similar profiles and where an ad-funded project may make sense.

Bus stations, for example, may cost about $10,000 – $15,000, which is in a similar cost range as smart kiosks. According to the MTA, the NYC bus system sees over 11.2 million riders per week or nearly 700 riders per station per week. Rider wait times can often be five-to-ten minutes in length if not longer. Not to mention bus stations already have experience utilizing advertising to a certain degree.  Projects like bike-share docking stations and EV charging stations also seem to fit similar cost profiles while having high engagement.

And interactions with these types of infrastructure are ones where users may be more receptive to ads, such as an EV charging station where someone is both physically engaging with the equipment and idly looking to kill up sometimes up to 30 minutes of time as they charge up. As a result, more companies are using advertising models to fund projects that fit this mold, like Volta, who uses advertising to offer charging stations free to citizens.

The benefits of ad-funding come with tradeoffs for cities

When it makes sense for cities and third-party developers, advertising-funded smart city infrastructure projects can unlock a tremendous amount of value for a city. The benefits are clear – cities pay nothing, citizens are offered free connectivity and real-time information on local conditions, and smart infrastructure is built and can possibly be used for other smart city applications down the road, such as using locational data tracking to improve city zoning and congestion. 

Yes, ads are usually annoying – but maybe understanding that advertising models only work for specific types of smart city projects may help quell fears that future cities will be covered inch-to-inch in mascots. And ads on projects like LinkNYC promote local businesses and can tap into idiosyncratic conditions and preferences of regional communities – LinkNYC previously used real-time local transit data to display beer ads to subway riders that were facing heavy delays and were probably in need of a drink. 

Like everyone’s family photos from Thanksgiving, the picture here is not all roses, however, and there are a lot of deep-rooted issues that exist under the surface. Third-party developed, advertising-funded infrastructure comes with externalities and less obvious costs that have been fairly criticized and debated at length. 

When infrastructure funding is derived from advertising, concerns arise over whether services will be provided equitably across communities. Many fear that low-income or less-trafficked communities that generate less advertising demand could end up having poor infrastructure and maintenance. 

Even bigger points of contention as of late have been issues around data consent and treatment. I won’t go into much detail on the issue since it’s incredibly complex and warrants its own lengthy dissertation (and many have already been written). 

But some of the major uncertainties and questions cities are trying to answer include: If third-parties pay for, manage and operate smart city projects, who should own data on citizens’ living behavior? How will citizens give consent to provide data when tracking systems are built into the environment around them? How can the data be used? How granular can the data get? How can we assure citizens’ information is secure, especially given the spotty track records some of the major backers of smart city projects have when it comes to keeping our data safe?

The issue of data treatment is one that no one has really figured out yet and many developers are doing their best to work with cities and users to find a reasonable solution. For example, LinkNYC is currently limited by the city in the types of data they can collect. Outside of email addresses, LinkNYC doesn’t ask for or collect personal information and doesn’t sell or share personal data without a court order. The project owners also make much of its collected data publicly accessible online and through annually published transparency reports. As Intersection has deployed similar smart kiosks across new cities, the company has been willing to work through slower launches and pilot programs to create more comfortable policies for local governments.

But consequential decisions related to third-party owned smart infrastructure are only going to become more frequent as cities become increasingly digitized and connected. By having third-parties pay for projects through advertising revenue or otherwise, city budgets can be focused on other vital public services while still building the efficient, adaptive and innovative infrastructure that can help solve some of the largest problems facing civil society. But if that means giving up full control of city infrastructure and information, cities and citizens have to consider whether the benefits are worth the tradeoffs that could come with them. There is a clear price to pay here, even when someone else is footing the bill.

And lastly, some reading while in transit:

News Source = techcrunch.com

The innovation supply chain: How ideas traverse continents and transform economies

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While Westerners often associate the invention of calculus with 17th century European luminaries like Isaac Newton and Gottfried Leibniz, its theoretical foundations actually stretch back millennia. Fundamental theorems appear in ancient Egyptian work from 1820 BC, and later influences sprout from Babylonian, Ancient Greek, Chinese and Middle Eastern texts.

Such is the nature of the world’s biggest ideas — concepts that arise in one corner of the world provide the scaffolding for future advancements. Realizing the true potential of any idea takes time and requires input from diverse cultures and perspectives.

Technological innovation is no exception.

In the tech world today, this is playing out in three important ways:

  • ideas improve when they become global;
  • the best ideas are increasingly starting internationally; and
  • testing globally is a differentiated strategy.

Ideas improve as they scale globally

Like calculus, technological innovation benefits from international iteration.

Ridesharing, for instance, started as an innovation pioneered by Uber and Lyft in San Francisco. Yet startups rapidly exported the model globally. Such evolution reflects local needs. Take Go-Jek, a ridesharing app that is now a dominant local player in Indonesia. Although Go-Jek “replicated” the model, they also took a highly localized approach, applying the Uber/Lyft concept to Jakarta’s existing informal system of motorcycle taxis, “ojeks.”

Yet Go-Jek realized that ojek drivers had the potential to do so much more than just move people around. The company aims to maximize driver engagement throughout the day and has built a multi-service app that allows them to not only transport people, but also deliver food, packages and services. As Nadiem Makarim, Go-Jek’s CEO put it, “In the mornings, we drive people from home to work. At lunch, we deliver them meals to the office. In the late afternoon, we drive people back home. In the evenings, we deliver ingredients and meals. And in-between all this, we deliver e-commerce, financial products and other services.”

Silicon Valley used to have a monopoly on the idea, manufacturing and distribution of innovation. No longer.

The model of leveraging a single ridesharing platform to deliver a range of services is undoubtedly different from the Silicon Valley original. In Silicon Valley, an array of companies offering Uber for X have sprung up, yet some of Uber’s latest product categories — like UberEats — seem more akin to the Southeast Asian model.

Tellingly, Go-Jek’s vision incorporates inspiration from another geography: China. In China, platforms like Tencent’s WeChat offer a range of direct and third-party services spanning ride-hailing, shopping, food delivery and, of course, payments. WeChat payment functionality (like Ant’s equivalent) is nearly ubiquitous in major Chinese cities.

Go-Jek, like its competitor Grab, has evolved its model to include a payments platform as part of the app. It is striking to see Uber enter financial services, as well — take, for example, the recent Uber credit card.

These models evolve by learning and combining lessons from other geographies.

The seeds are increasingly global

Historically, entrepreneurs outside Silicon Valley were accused of being replicators — copying and adapting successful models pioneered in San Francisco or Palo Alto.

Times are changing.

Many of the most compelling tech innovations increasingly come from outside of Silicon Valley, and even the United States. Just look at some of 2018’s most successful IPOs — Sweden’s Spotify, Brazil’s Stone and China’s PinDuoDuo (a Cathay Innovation portfolio company).

Entrepreneurs are working to replicate innovations from every corner of the globe. Take mobile payments.  M-Pesa, Kenya’s ubiquitous payments platform that now transacts a remarkable 50 percent of its country’s GDP, has created a global movement. Today, there are more than 275 deployments around the world.

Certain geographies are specializing. Toronto and Montreal are emerging as artificial intelligence hubs. London and Singapore remain leading fintech hubs. Israel is known for its cybersecurity and analytics expertise. And regionally focused initiatives are catalyzing this further. For instance, Rise of the Rest is committed to supporting entrepreneurs across the U.S., and organizations like Endeavor facilitate the development of entrepreneurial hubs worldwide.

The nascent innovation supply chain will see increasing globalization of the generation of new ideas.

Emerging ecosystems can provide optimal testing grounds

Broadway is famous for testing its shows in smaller markets before committing them to the big stage. Similarly, innovators are looking to emerging markets to test models before scaling them.

SkyAlert, which operates an earthquake early warning system, is an illustrative example. In most earthquakes, people do not die from the shakes but rather from getting trapped or crushed under collapsing buildings. Technologically, it is possible to perceive and distribute an early warning, as a quake is first felt near the epicenter and travels outward from there. Through its network of distributed sensors, SkyAlert promises its users a head start to evacuate buildings, and can work with companies to automate security protocols (e.g. gas shutoff).

SkyAlert was not born in San Francisco. Alejandro Cantu, SkyAlert’s founder, began in Mexico City, which he describes as his innovation laboratory. The early versions were focused on R&D rather than commercialization. Developing this in Mexico City was much more affordable for product innovation. Salaries were cheaper. Cost of acquisition was cheaper. The U.S. is now his main target market, but Mexico served as his early base of operations and testing ground.

As a community of innovators, we have an opportunity to take advantage of these trends.

Just as most Silicon Valley techies are familiar with the buzz around Amazon’s home drone deliveries, the majority remain unaware that some of the most interesting drone innovation is happening far away in emerging markets. In developing nations, where infrastructure is far more limited, drones offer lifesaving potential. Startups like Zipline leverage drones to leapfrog broken or nonexistent infrastructure. They deliver time-sensitive drugs and blood across Rwanda through a partnership with the ministry of health. Already, its drones have covered 600,000 km and delivered nearly 14,000 units of blood (one-third of which were in emergency situations).

Entrepreneurs are testing these innovations in markets that are more affordable, and where the need is most acute. Over time, such models will scale and return to developed markets. This is how the innovation supply chain will evolve. 

Where we go from here

The Economist recently predicted a “Techodus” — that innovation will continue to shift away from Silicon Valley. The story is more nuanced.

Silicon Valley used to have a monopoly on the idea, manufacturing and distribution of innovation. No longer. The creative spark is coming from everywhere, innovators are testing ideas in markets where costs are lower and needs are more acute and models are perfected from lessons from around the world.

As a community of innovators, we have an opportunity to take advantage of these trends. You have a new product idea that could be completely transformative? Great. Who else is doing that globally? You want to test a new idea? What are the advantages and disadvantages of various locations? How can the innovations’ lessons from abroad be replicated locally?

News Source = techcrunch.com

Should cash-strapped Snapchat sell out? To Netflix?

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Snapchat needs a sugar daddy. Its cash reserves dwindling from giant quarterly losses. Poor morale from a battered share price and cost-cutting measures sap momentum. And intense competition from Facebook is preventing rapid growth. With just $1.4 billion in assets remaining at the end of a brutal Q3 2018 and analysts estimating it will lose $1.5 billion in 2019 alone, Snapchat could run out of money well before it’s projected to break even in 2020 or 2021.

So what are Snap’s options?

A long and lonely road

Snap’s big hope is to show a business turnaround story like Twitter, which saw its stock jump 14 percent this week despite losing monthly active users by deepening daily user engagement and producing profits. But without some change that massively increases daily time spent while reducing costs, it could take years for Snap to reach profitability. The company has already laid off 120 employees in March, or 7 percent of its workforce. And 40 percent of the remaining 3,000 employees plan to leave — up 11 percentage points from Q1 2018 according to internal survey data attained by Cheddar’s Alex Heath.

Snapchat is relying on the Project Mushroom engineering overhaul of its Android app to speed up performance, and thereby accelerate user growth and retention. Snap neglected the developing world’s Android market for years as it focused on iPhone-toting US teens. Given Snapchat is all about quick videos, slow load times made it nearly unusable, especially in markets with slower network connections and older phones.

Looking at the competitive landscape, WhatsApp’s Snapchat Stories clone Status has grown to 450 million daily users while Instagram Stories has reached 400 million dailies — much of that coming in the developing world, thereby blocking Snap’s growth abroad as I predicted when Insta Stories launched. Snap actually lost 3 million daily users in Q2 2018. Snap Map hasn’t become ubiquitous, Snap’s Original Shows still aren’t premium enough to drag in tons of new users, Discover is a clickbait-overloaded mess, and Instagram has already copied the best parts of its ephemeral messaging.

SAN FRANCISCO, CA – SEPTEMBER 09: Evan Spiegel of Snapchat attends TechCruch Disrupt SF 2013 at San Francisco Design Center on September 9, 2013 in San Francisco, California. (Photo by Steve Jennings/Getty Images for TechCrunch)

As BTIG’s Rich Greenfield points out, CEO Evan Spiegel claims Snapchat is the fastest way to communicate, but it’s not for text messaging, and the default that chats disappear makes it unreliable of utilitarian chat. And if WhatsApp were to add an ephemeral messaging feature of its own, growth for Snapchat could get even tougher. Snap will have to hope it can hold on to its existing users and squeeze more cash out of them to keep reducing losses.

All those product missteps and and market neglect have metastasized into a serious growth problem for Snapchat. It lost another 2 million users this quarter, and expects to sink further in Q4. Even with the Android rebuild, Spiegel’s assurances for renewed user growth in 2019 seem spurious. That means it’s highly unlikely that Snapchat will achieve Speigel’s goal of hitting profitability in 2019. It needs either an investor or acquirer to come to its aid.

A bailout check

Snap could sell more equity to raise money. $500 million to $1 billion would probably give it the runway necessary to get into the black. But from where? With all the scrutiny on Saudi Arabia, Snap might avoid taking money from the kingdom. Saudi’s Prince Al-Waleed Talal already invested $250 million to buy 2.5 percent of Snap on the open market.

Snap’s best bet might be to take more money from Chinese internet giant Tencent. The massive corporation already spent around $2 billion to buy a 12 percent stake in Snap from the open market. The WeChat owner has plenty of synergies with Snapchat, especially since it runs a massive gaming business and Snap is planning to launch a third-party developer gaming platform.

Tencent could still be a potential acquirer for Snap, but given President Trump’s trade war with China, he might push regulators to block a sale. The state of American social networks like Twitter and Facebook that are under siege by foreign election interference, trolls, and hackers might make the US government understandably concerned about a Chinese giant owning one of the top teen apps.

Regardless of who would invest, they’d likely demand real voting rights — something Snap has denied investors through a governance structure. Spiegel and his co-founder Bobby Murphy both get 10 votes per share. That’s estimated to amount to 89 percent of the voting rights. Shares issued in the IPO came with zero voting rights.

Evan Spiegel and Bobby Murphy, developers of Snapchat (Photo by J. Emilio Flores/Corbis via Getty Images)

But that surely wouldn’t sit well with any investor willing to pour hundreds of millions of dollars into the beleaguered company. Spiegel has taken responsibility for pushing the disastrous redesign early this year that coincided with a significant drop in its download rank. It also inspired a tweet from mega-celebrity Kylie Jenner bashing the app that shaved $1.3 billion off the company’s market cap.

Between the redesign flop, stagnant product innovation, and Spiegel laughing off Facebook’s competition only to be crushed by it, the CEO no longer has the sterling reputation that allowed him to secure total voting control for the co-founders. That means investors will want assurance that if they inject a ton of cash, they’ll have some recourse if Spiegel mismanages it. He may need to swallow his pride, issue voting shares, and commit to milestones he’s required to hit to retain his role as chief executive.

A Soft Landing Somewhere Else

Snap could alternatively surrender as an independent company and be acquired by a deep-pocketed tech giant. Without having to worry about finances or short-term goals, Snap could invest in improving its features and app performance for the long-term. Social networks are tough to kill entirely, so despite competition, Snap could become lucrative if aided through this rough spot.

Combine that with the $637 million bonus Spiegel got for taking Snap public, and he has little financial incentive or shareholder pressure compelling him to sell. Even if the company was bleeding out much worse than it is already, Spiegel could ride it into the ground.

Again, the biggest barrier to this path is Spiegel. Combine totalitarian voting control with the $637 million bonus Spiegel got for taking Snap public, and he has little financial incentive or shareholder pressure compelling him to sell. Even if the company was bleeding out much worse than it is already, Spiegel could ride it into the ground. The only way to get a deal done might be to make Spiegel perceive it as a win.

Selling to Disney could be spun as a such. It hasn’t really figured out mobile amidst distraction from super heroes and Star Wars. Its core tween audience are addicted to YouTube and Snap even if they shouldn’t be on them. They’re both LA companies. And Disney already ponied up $350 million to buy kids desktop social networking game Club Penguin. Becoming head of mobile or something like that for the most iconic entertainment company ever could a vaulted-enough position to entice Spiegel. I could see him being a Disney CEO candidate one day.

What about walking in the footsteps of Steve Jobs? Apple isn’t social. It failed so badly with efforts like its Ping music listeners network that it’s basically abdicated the whole market. iMessage and its cutesy Animoji are its only stakes. Meanwhile, it’s getting tougher and tougher to differentiate with mobile hardware. Each new iPhone seems closer to the last. Apple has resorted to questionable decisions like ditching the oft-missed headphone jack and reliable TouchID to keep the industrial design in flux.

Increasingly, Apple must rely on its iOS software to compete for customers with Android headsets. But you know who’s great at making interesting software? Snapchat. You know who has a great relationship with the next generation of phone owners? Snapchat. And do you know whose CEO could probably smile earnestly beside Tim Cook announcing a brighter future for social media unlocked by two privacy-focused companies joining forces? Snapchat. Plus, think of all the fun Snapple jokes?

There’s a chance to take revenge on Facebook if Snapchat wanted to team up with Mark Zuckerberg’s old arch nemesis Google . After Zuck declared “Carthage must be destroyed”, Google+ flopped and its messaging apps became a fragmented mess. Alphabet has since leaned away from social networking. Of course it still has the juggernaut that is YouTube — a perennial teen favorite alongside Snapchat and Instagram. And it’s got the perfect complement to Snap’s ephemerality in the form of Google Photos, the best-in-class permanent photo archiving tool. With the consume side of Google+ shutting down after accidentally exposing user data, Google still lacks a traditional social network where being a friend comes before being a fan.

What Google does have is a reputation for delivering the future. From Waymo’s self-driving cars to Calico’s plan to make you live forever, Google is an inventive place where big ideas come to fruition. Spiegel could frame Google as aligned with its philosophy of creating new ways to organize and consume information that adapt to human behavior. He surely wouldn’t mind being lumped in with Internet visionaries like Larry Page and Sergei Brin. Google’s Android expertise could reinvigorate Snap in emerging markets. And together they could take a stronger swing at Facebook.

But there are problems with all of these options. Buying Snap would be a massive bet for Disney, and Snap’s lingering bad rap as a sexting app might dissuade Mickey Mouse’s overlords. Apple rarely buys such late-stage public companies. CEO Tim Cook has been able to take the moral high ground because Apple makes its money from hardware rather than off of  personal info through ad targeting. If Apple owned Snap, it’d be in the data exploitation business just like everyone else.

And Google’s existing dominance in software might draw the attention of regulators. The prevailing sentiment is that it was a massive mistake to let Facebook acquire Instagram and WhatsApp, as it centralized power and created a social empire. With Google already owning YouTube, the government might see problems with it buying one of the other most popular teen apps.

That’s why I think Netflix could be a great acquirer for Snap. They’re both video entertainment companies at the vanguard of cultural relevance, yet have no overlap in products. Netflix already showed its appreciation for Snapchat’s innovation by adopting a Stories-like vertical video clip format for discovering and previewing what you could watch. The two could partner to promote Netflix Originals and subscriptions inside of Snapchat. Netflix could teach Snap how to win at exclusive content while gaining a place to distribute video that’s under 20 minutes long.

With a $130 billion market cap, Netflix could certainly afford it. Though since Netflix already has $6 billion in debt from financing Originals, it would have to either sell more debt or issue Netflix shares to Snapchat’s owners. But given Netflix’s high-flying performance, massive market share, and cultural primacy, the big question is whether Snap would drag it down.

So how much would it potentially cost? Snap’s market cap is hovering around $8.8 billion with a $6.28 share price. That’s around its all-time low and just over a quarter of its IPO pop share price high. Acquiring Snap would surely require paying a premium above the market cap. Remember, Google already reportedly offered to acquire Snap for $30 billion prior to its final funding round and IPO. But that was before Snap’s growth rate sunk and it started losing the Stories War to Facebook. A much smaller offer could look a lot prettier now.

Social networks are hard to kill. If Snap can cut costs, fix its product, improve revenue per users, and score some outside investment, it could survive and slowly climb. If Twitter is any indication, aging social networks can reflower into lucrative businesses given enough time and product care. But if Snapchat wants to play in the big leagues and continue having a major influence on the mobile future, it may have to snap out of the idea that it can win on its own.

News Source = techcrunch.com

Worries linger as Facebook withholds stolen searches & checkins

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Hacked Facebook users still don’t know which 15 recent searches and 10 latest checkins were exposed in the company’s massive breach it detailed last week. The company merely noted that those were amongst the data sets stolen by the attackers. That creates uncertainty about how sensitive or embarrassing the scraped data is, and whether it could possibly be used to blackmail and stalk them.

Much of the scraped data from the 14 million most-impacted users out of 30 million total people hit by the breach was biographical and therefore relatively static, such as their birth date, religion or hometown. While still problematic because it could be used for unconsented ad targeting, scams, hacking attempts or social engineering attacks, at least users likely know what was illicitly grabbed.

Thankfully, some of the most sensitive data fields, such as sexual orientation, were not accessed, Facebook confirms to me. But the exposure of recent searches and checkins could threaten users in different ways.

Given the attack was so broad and impacted a wide variety of users, unlike say a targeted attack on the Democratic National Convention, there’s no evidence that blackmailing or stalking individual users was the purpose of the hack. For the average user hit by the breach, the likelihood of this kind of follow-up attack may be low.

But given that public figures, including Facebook CEO Mark Zuckerberg and COO Sheryl Sandberg, were victims of the attack, as well as many reporters (myself included), there remains a risk that the perpetrators paw through the data seeking high-profile people to exploit.

Stolen data on “the 15 most recent searches you’ve entered into the Facebook search bar” could contain embarrassing or controversial topics, competitive business research or potential infidelity. Many users might be mortified if their searches for racy content, niche political viewpoints or their ex-lovers were published in association with their real name. Hackers could potentially target victims with blackmail scams threatening to reveal this info to the world, especially since the hack included user contact info, including phone numbers and email addresses.

Scraped checkins could power real-world stalking or attacks. Users’ exact GPS coordinates were not accessible to the hackers, but they did grab 14 million people’s “10 most recent locations you’ve checked in to or been tagged in. These locations are determined by the places named in the posts, such as a landmark or restaurant, not location data from a device,” Facebook writes. If users checked in to nearby coffee shops, their place of work or even their home if they’ve given it a cheeky name as some urban millennials do, their history of visiting those locations is now in dangerous hands.

If users at least knew what searches or checkins of theirs were stolen, they could choose if or how they should modify their behavior or better protect themselves. That’s why amongst Facebook’s warnings to users about whether they were hacked and what types of data were accessed, it should also consider giving those users the option to see the specific searches or checkins that were snatched.

When asked by TechCrunch, a Facebook spokesperson declined to comment on its plans here. It is understandable that the company might be concerned that disclosing the particular searches and checkins could unnecessarily increase fear and doubt. But if it’s just trying to limit the backlash, it forfeited that right when it prioritized growth and speed over security.

As Facebook tries to recover from the breach and regain the trust of its audience of 2.2 billion, it should err on the side of transparency. If hackers know this information, shouldn’t the hacked users too?

News Source = techcrunch.com

Study says the US is quickly losing its entrepreneurial edge

in Asia/Brad Feld/China/Delhi/Europe/Finance/funding/Fundings & Exits/Government/India/Opinion/Policy/Politics/Reviews/richard florida/Startups/TC/urban development/Urban Tech/Venture Capital by

Photographer: Daro Sulakauri/Bloomberg

According to a new study conducted by the Center for American Entrepreneurship and NYU’s Shack Institute of Real Estate, the US may be losing its competitive advantage as the dominant nucleus of the startup and venture capital universe. 

The analysis, led by senior Brookings Institute fellow Ian Hathaway and “Rise of the Creative Class” author Richard Florida, examines the flow of venture capital over 100,000 deals from 2005 to 2017 and details how the historically US-centric practice of venture capital has become a global phenomenon.

While the US still appears to produce the largest amount of venture activity in the world, America’s share of the global pie is falling dramatically and doing so quickly.

In the mid-90s, the US accounted for more than 95% of global venture capital investment.  By 2012, this number had fallen to 70%. At the end of 2017, the US share of total venture investment had fallen to just 50%.   

Over the last decade, non-US countries have propelled growth in the global startup and venture economy, which has swelled from $50 billion to over $170 billion in size.  In particular, China, India and the UK now account for a third of global venture deal count and dollars – 2-3x the share held ten years ago.  And with VC dollars increasingly circulating into modernizing Asia-Pac and European cities, the researchers found that the erosion in the US share of venture capital is trending in the wrong direction.

Growth of global startup cities and the myth of the American “rise of the rest”

We’ve spent the summer discussing the notion of Silicon Valley reaching its parabolic peak – Observing the “rise of the rest” across smaller American tech hubs.  In reality, the data reveals a “rise in the rest of the world”, with startup ecosystems outside the US growing at a faster pace than most US hubs.

The Bay Area remains the world’s preeminent beneficiary of VC investment, and New York, Los Angeles, and Boston all find themselves in the top ten cities contributing to global venture growth.  However, only six of the top 20 cities are located in the US, while 14 are in Asia or Europe.  At the individual level, only two American cities crack the top 20 fastest growing startup hubs.  

Still, the authors found the bulk of VC activity remains highly concentrated in a small number of incumbent startup cities. More than 50% of all global venture capital deployed can be attributed to only six cities and half of the growth in VC activity over the last five years can be attributed to just four cities.  Despite the growing number of ecosystems playing a role in venture decisions, the dominant incumbent startup hubs hold a firm grip on the majority of capital deployed.

China and the surge of mega deals

Unsurprisingly, the largest contributor to the globalization of venture capital and the slimming share of the US is the rapid escalation of China’s startup ecosystem.

In the last three years, China has captured nearly a fourth of total VC investment.  Since 2010, Beijing contributed more to VC deployment growth than any other city, while three other Chinese cities (Shanghai, Hangzhou, Shenzhen) fell in the top 15. 

A major part of China’s ascension can be tied to the idiosyncratic rise of late-stage “mega deals”, which the study defines as $500 million or more in size.  Once an extremely rare occurrence, mega deals now make up a significant portion of all venture dollars deployed.  From 2005-2007, only two mega deals took place.  From 2010-2012, eight of such deals took place.  From 2015-2017, there were 80 global mega deals, representing a fifth of the total venture capital activity.  Chinese cities accounted for half of all mega deal investment over the same period.

The good, the bad, and the uncertain

It’s not all bad for the US, with the study highlighting continued ecosystem growth in established US hubs and leading roles for non-valley markets in NY, LA, and Boston.

And the globalization of the startup and venture economy is by no means a “bad thing”.  In fact, access to capital, the spread of entrepreneurial spirit, and stronger global economic development and prosperity is almost unquestionably a “good thing.”

However, the US’ share of venture-backed startups is falling, and the US losing its competitive advantage in the startup and venture capital market could have major implications for its future as a global economic leader.  Five of the six largest US companies were previously venture-backed startups and now provide a combined value of around $4 trillion. 

The intense competition for talent marks another major challenge for the US who has historically been a huge beneficiary of foreign-born entrepreneurs.  With the rise of local ecosystems across the globe, entrepreneurs no longer have to flock to the US to build their companies or have access to venture capital.  The problem attracting entrepreneurs is compounded by notoriously unfriendly US visa policies – not to mention recent harsh rhetoric and tension over immigration that make the US a less attractive destination for skilled immigrants.  

At a recent speaking event, Florida stated he believed the US’ fading competitive advantage was a greater threat to American economic power than previous collapses seen in the steel and auto industries.  A sentiment echoed by Techstars co-founder Brad Feld, who in the report’s forward states, “government leaders should read this report with alarm.”

It remains to be seen whether the train has left the station or if the US can hold on to its position as the world’s venture leader.  What is clear is that Silicon Valley is no longer the center of the universe and the geography of the startup and venture capital world is changing.

The Rise of the Global Startup City: The New Map of Entrepreneurship and Venture Capital tries to illustrate these tectonic shifts and identifies tiers of global startup cities based on size, growth and balance of VC deals and investments.

News Source = techcrunch.com

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