China Banks on Venture Capital Research Center China Venture News One of my new contributors to this blog is Professor Mannie Liu. Located in Beijing, at the School of Finance, Renmin University of China, she also serves as the director of …

© joshDubya

To say Chinese culture has its eccentricities would be an understatement. Many of the most basic thought processes are different from what most Western visitors are accustomed to. Understanding things like the importance of relationship in Chinese culture (we tend to be far more independent) or the role of authority simply baffles many visitors from Europe and the US.

The details of life often hold hidden meanings. At least those meanings are hidden from Western visitors (they're obvious to locals). One of …

Tesla Motors‘ Roadster was all set to be discontinued (at least temporarily) early next year. But the electric car company just struck a deal with manufacturing partner Lotus to keep the vehicle in stock till at least the end of 2011, giving it more runway to launch its highly-anticipated Model S sedan.

Tesla has been pretty candid about how its Roadster’s primary function is to generate money and hype for the more practical and affordable sedan — the car that is groomed to become the core of the company’s business plan. The idea was to release the Roadster first, to establish the company’s profile, appeal to early adopters, and pull in revenue for the Model S’s development.

Accordingly, Tesla plans to stop making them once the Model S is ready for market, sometime in 2012. Based on this timeline, it contracted Lotus to build bodies for the Roadster (called gliders, they include the shell of the cars without the powertrains) through March 2011. But it announced today that it has extended the engagement to the end of 2011 — and from 1,700 gliders to 2,400.

This change will allow Tesla to sell more Roadsters, and to keep them in stock for longer, so that there won’t be a gap between when they are discontinued and when the Model S rolls into showrooms. After the sedan has some time to penetrate the auto market, Tesla plans to bring the Roadster back — with some modifications — by 2013 or 2014.

The company also reported its finalized 2009 earnings. It says it lost $55.7 million this year, promisingly down from the $82.8 million in losses it posted for 2008, according to Reuters.

This isn’t the only loss Tesla acknowledged today. The Wall Street Journal ran news that its senior finance director, Ryan Popple, has also departed the company for a new position at famed Silicon Valley venture firm Kleiner Perkins Caufield & Byers.

Companies: Kleiner Perkins Caufield & Byers, Lotus, Tesla Motors

Never let it be said that I don’t admit when I’m wrong.

I mean, granted, I don’t particularly like being wrong – and I especially don’t like being wrong in the full glare of the public spotlight. But on the vanishingly small number of occasions when – due to some inexplicable glitch in the universe – I happen to be wrong, never let it be said that I don’t admit it.

A case in point… I just stumbled across an excellent post by biographer TJ Stiles, calling me out over my claim that hardback books are a ‘cash cow’ for the publishing industry.”Let’s set the record straight,” said Mr Stiles, “publishers (and authors) make much more money from hardcovers, it’s true. That is one reason why they have always delayed the release of cheaper paperbacks. But to refer to anything in publishing as a ‘cash cow’ is to suggest a level of profitability that simply does not exist in this narrow-margin industry. ‘Life line’ would be a better cliché. Did publishers cut that life line when the paperback was invented? No. Why should they now for the e-book?”

…and you know what? He’s right. The phrase ‘cash cow’ was misleading – it has echoes of fat cat publishers making billions in profits when, in most cases nothing could be further from the truth. ‘Life line’ is a far better phrase. I was wrong and – see! – I have no problem admitting it.

Of course, that’s hardly the admission of the decade: in cases like that, admitting I was wrong doesn’t involve eating a whole lot of humble pie. A more accurate test would be if I were to make a stratospheric misjudgment about a major issue – a misjudgment that turned out to be so embarrassing that I’d rather bury my head in a box on ants than admit to my error. What would I do then?

On Friday I was given the opportunity to find out.

A few months ago, in this very column, I wrote about Rupert Murdoch and how he would never remove his newspapers’ content from Google’s index because he was too obsessed with eyeballs…

The numbers show that most searchers wouldn’t even notice if the Wall Street Journal and every other News Corp publication vanished from their results. What would definitely happen, though, is a huge drop in eyeballs and ad revenue for News Corp, which would certainly cost Murdoch far more than he could hope to recoup from a deal with Bing. Again, anyone familiar with the Sun (and its New York-based cousin, the Post) will know that Rupert will always put his hunger for eyeballs above his insistence that people pay for news – to the point where he is happy to slash cover prices to economically-suicidal levels to win readers.

My point was pretty unambiguous: unless Rupert Murdoch has lost his mind, his obsession with eyeballs meant he would never pull the plug on freely available onlinbe content. Rupert Murdoch hasn’t lost his mind, ergo his content would stay free. And then on Friday came this…

Times and Sunday Times websites to charge from June

And you know what, I’m not afraid to say it.

I was wrong.

Rupert Murdoch has lost his mind.

Please understand I don’t make that statement lightly. When it comes to Murdoch, I’ve always been of the Michael Wolff school – doubting the man’s Internet credentials (allegedly he still hasn’t ever used Google) but at the same time respecting his business sense and his willingness to defer to trusted advisors when it comes to his company’s digital strategy. But with this latest decision it’s clear that he has not so much lost his marbles as collected them together into a lead bag and thrown them into the sea.

Moving its content behind a pay-wall will be the death of the Times; one of the world’s most respected newspapers and a British national treasure. Even with a relatively modest subscription cost of £1 ($1.60) a day or £2 for the whole week, it has been shown time and time again that the hassle factor of making even a small payment to access a website will result in a hemorrhaging of readers. Unlike the Financial Times (no relation), only a small fraction of the Times’ online readership do so for business reasons – with most incorporating it into their general news diet. If it’s no longer free they’ll simply get their news elsewhere.

And then there’s the drop in Google juice: News International is yet to announce its search indexing policy for the new site but its safe to say that the pay-wall will mean the vast majority of the paper’s news archive vanishing from search engines.  Times Online currently attracts 20 million unique readers a month, most of whom will disappear overnight once the pay-wall is erected.

No matter which angle you look at Murdoch’s decision, it’s almost impossible to see it as anything other than a sign of madness. But of course that hasn’t stopped some from trying to spot some hint of method in it…

James Harding, editor of The Times, tried to put a brave face on his boss’ decision – much like a mid-ranking officer might try to justify to his men why Douglas Haig has ordered them to go over the top during the Battle of the Somme. According to the BBC, Harding “agreed that NI’s paywall strategy was a risk… but [argued that] it’s less of a risk than just throwing away our journalism and giving it away for free.”

Nice try James, but that doesn’t really wash. For a start, complaining that making newspaper content available for free online is somehow devaluing it is just plain stupid. For years newspapers have been giving their paper editions away for free – on airlines and in other high-traffic locations – on the basis that these “bulks” will increase circulation figures and will in turn drive more advertising. Once you factor in printing, distribution and returns, the cover price of a newspaper – and let’s remember that Murdoch is the king of slashing prices to drive competitiors out of business – barely covers the medium on which it’s delivered.

Advertising has always been the real revenue driver in print, to the point where Murdoch was quite happy to give his “away for free” with the launch of a free London daily back in 2005 (it went out of business last year due to fiece competition from another free paper from rivals Associated Newspapers). The truth is that – as Jeff Jarvis writes in the Guardian – Murdoch simply hasn’t been able to figure out how to make online advertising work. And it’s that inability that has driven him to his current madness.

There’s a second problem with Harding’s argument: journalists and columnists actually are quite keen on having their product given away free. No matter whether we’re covering Iraq or fashion trends, we writers tend to be egotists at heart, which is one of the reasons we’re prepared to accept the reasonably shitty salaries offered by news organisations rather than going in to, say, PR. Our reward isn’t so much money as the knowledge that our work will be appreciated by a large audience. With print circulation plummeting (the Times has gone from nearly 700,000 daily readers to 500,000 in the past five years), journalists want to write for publications with large onloine audiences to ensure that their reporting is seen by the masses.

When Sirius hired Howard Stern they had to pay him a hugely inflated salary to reflect the fact that he’d be seeing a large and immediate drop in his listener numbers. Similarly, by hiding its journalism behind a paywall, News International will have to pay vastly inflated salaries to attract the best an brightest to its pages. And in an era where newspapers can barely afford to keep the talent they have, that’s just another nail in the coffin.

Really the only possible reasoning – outside of madness – that’s left for Murdoch’s behaviour is that he’s cleverer than all of us. Perhaps if we just watch quietly we’ll soon see the true genius behind his plan. After all, that’s what happened back in the 1980s and 90s when he launched Sky Television – a British-based satellite TV channel. Back then no one in the UK paid for television (we’d been brought up on free to air TV with little or no demand for cable) and there were no signs that they were ready to start – and yet in less than a decade Sky had become one of the country’s biggest broadcasters. The success of Sky was down to the content – Murdoch bought the rights to broadcast premium football (sorry, soccer) games, forcing millions of households to sign up to Sky if they wanted to follow their favourite teams. Perhaps that’s his plan with the Times as well – make the content of his new online editions so unbelievably compelling that subscribers will be forced to sign up in their droves?

Nope, that doesn’t wash either. With Sky, Murdoch was operating in a single market (the UK) with a product (pay per view TV) that had already been proven overseas. With Times Online, Murdoch is competeing on a global stage and, unless the Times is about to switch its editorial page over to porn, there’s no example of anyone getting the paid news content model right for a consumer audience so far.

Especially not someone who is so afraid of the Internet that they haven’t even used Google.

Giving away your product for free can be either a disaster or a great move. Doing it the right way is an art, as various speakers said at the Freemium Summit in San Francisco today.

A case in point is the “freemium” business model of Evernote, which creates software that serves as a memory aid, or external brain. The company gives away its product for free on a variety of platforms and charges a $5 per month subscription to the power users who want the most features. Phil Libin, chief executive, revealed a wealth of details today about how the freemium model makes sense for Evernote, which now has 2.7 million users.

First, here’s how the software works. Evernote lets you record just about anything and then recall it as you need it. You can take a picture of a business card, sync it with the Evernote software, and it will keep that card with all of the other things in your computer that are related to the same business. When you want to recall something, you search for it in Evernote and you get automatic recall of things you wanted to remember, like the name of the restaurant that serves your favorite wine.

The process involves multiple steps. You can use Evernote to clip out anything — headlines, text, pictures, handwritten notes, take voice notes, or save photos. You can add categories or put the clippings into notebooks. Then Evernote indexes the data and you can search on anything via keyword, tags, notebooks or other categories. The search results show you everything associated with certain topics.

The company is hitting its stride now, but it wasn’t easy. It was founded in 2005 by Stepan Pachikov, an Azerbiijan-born entrepreneur who founded a number of Russian software companies. He developed the necessary image recognition and processing technologies to make the service work quickly. The vision of creating a memory aid was always the same, but Libin joined in mid-2007 and helped the company do a major relaunch.

The free version launched in June, 2008. The number of users grew gradually and organically. There was no built-in sharing function in the software that would have made it inherently viral. The app was simply useful and users shared it with their friends.

The company expanded it to the iPhone, Mac, Windows PC, the web, and Android phones. About 60 percent of the audience is in the U.S. About 40 percent is overseas, with a large markte in Japan. Now the audience is 2.7 million users, with 7,000 added each day. The number of premium subscribers was 50,000 as of a couple of months ago. That was 1.8 percent of total users, and it was 6 percent of the active users (who used it in the last month).

Libin dove into details of one of the statistical groups, known as a cohort. He noted that 31,334 users signed up for the service in March, 2008. Of those, 50 percent stopped using it in the first month. Then the number of users dropped until about 11,000 of the 31,334 users became regular users coming back every month.

Those 11,00 users mean that the software has a great ability to retain users. If you think about it, the more you use Evernote, the more valuable it becomes. If you have two years of your life stored within it, and there is no other way to quickly find information, then you will keep on using it. (Libin makes an argument that some users rely on Evernote so much over time that they will consider it to be as valuable  as a car).

At first, the cohort from March, 2009, didn’t spend any money. In the first month, Evernote made about $300, meaning about 60 of the original 31,334 users decided to subscribe on the spot. But the longer people used it, the more likely they were to subscribe. With some sense of relief, Libin said that the cohort’s subscriptions grew over time so that now those users generate $8,000 per month.

“Our users are like a fine, stinky cheese or wine,” Libin said. “It gets better every month.” (Note to entrepreneurs: don’t refer to your users as stinky cheese).

Overall revenue from the company is now greater than $150,000 per month. Each time the company started talking about its subscriptions and new features, it got an increase in adoption. At the time when the first annual renewals came up, there was no decrease in the rate of renewals or sign-ups. That means that the application hasn’t yet reached its saturation point for any of its cohorts, Libin said.

The key to hanging on to older users is introducing new features. Looked at another way, the data for the March 2009 cohort showed that 0.5 percent of users signed up in the first month. After six months, just 1 percent of users signed up. After a year, 2 percent had signed up, and after 16 months, 4 percent had signed up. Among the oldest cohorts, about 20 percent of the users are now premium subscribers.

Also in the first month, revenues were about 3 cents per active users. After two years, the revenue per active user rose to 70 cents per month. The behavior of the cohorts is expected to change over time. For instance, Evernote software is now included on every Sony Vaio computer sold. Those users are likely to behave differently from those who sought out the software on their own and downloaded it.

Costs per active user started at around 50 cents. Now, that has dropped to around 8 cents or 9 cents per active user. The variable expenses per user include infrastructure such as server hardware, software, hosting, networking, backup storage, and electricity usage. That adds up to about 21 percent of current variable expenses. The customer service salaries are 27 percent of expenses, and network operations salaries are 52 percent of expenses.

Efficiencies come from the advance of Moore’s Law and the growing efficiency of server hardware. But Libin said, “You multiply Moore’s Law by Murphy’s Law, which means the number of things that go wrong will double every year.”

The company became profitable on a gross profit basis in January, 2009, and now it earns a gross profit of 11 cents per active user per month. This is why the company has been able to raise $22.5 million in three rounds from investors including Morgenthaler Ventures, NTT DoCoMo, and Troika Dialog.

The lessons from this growth: create a product that has a great long-term retention rate; make something whose value increases over time; keep your variable costs low.

Companies: Evernote

People: Phil Libin

© Joe+Jeanette Archie

You get in your car to go to the mall. That's not far… a few miles. A few miles and 11 stop lights. Usually you get caught at seven or eight of those 11 traffic lights. (Why don't you ever beat the odds and get caught at less than half of them?) Whatever. Thirty-four minutes later you're FINALLY at the mall. That means that with sitting in traffic and waiting at red lights, you averaged what? Fourteen miles and hour? Personally, I …

The momentum in online advertising is shifting away from traditional static text ads and towards rich media ads that are highly customized and interactive. Unfortunately, they generally take a lot more effort to create, which puts them out of reach for some companies.  Enter Widgetbox’s ClickTurn ad-builder. ClickTurn gives publishers a relatively fast and easy way to create dynamic ads with multiple tabs that include content from YouTube, Twitter and Facebook streams. Think of it as a mini site-within-a site where advertisers can showcase their best content and social media feeds.

ClickTurn has delivered over 100 million impressions so far, collecting a $1.50 CPM. Not too shabby, when you consider that ClickTurn launched in December and has 12 clients under contract (including CBS, IDG, Linkedin).

For publishers, why bother? Publishers want advertisers, advertisers want eyeballs, rich media ads attract more eyeballs. For comparison, the traditional display ad will see a 0.13% click-through rate and a 2% engagement rate (i.e. when a cursor floats over the ad), according to Widgetbox CEO, Will Price. Meanwhile, ClickTurn’s ads enjoy a 0.8% click-through rate with a 20-25% engagement rate.

There are other companies in this space like EyeWonder, Point Roll and Eyeblaster. Price says the rich ad process typically requires a flash developer and 4-6 weeks on average— making it a costly and labor intensive endeavor. Price says that anyone that can navigate Facebook can create an ad with ClickTurn’s template in half an hour. Using ClickTurn’s form, a user can pick custom backgrounds, select a size, add animation and create tabs with social media streams or other information/multimedia. There’s also an option to add a companion mobile ad (publishers can include an input field at the foot of their ad for user cell phone numbers). When a user enters his number, the ad sends a link via text message that will open a complementary mobile ad that uses HTML5 to present a more dynamic experience.

The rich media ad industry is still relatively small. Of the web’s $7.4 billion display ad market, just $1 billion is rich media. But it’s rapidly expanding as advertisers demand a more customized feel and higher audience engagement. And it’s about more than just clicks. The real value of a rich media ad is hidden in the treasure trove of user data. While a typical display ad can tell you the number of impressions, a service like ClickTurn can tell you how a user is interacting with your ad and which tabs/services are most popular (i.e. if users prefer your Facebook or YouTube stream). It’s a window into your consumer, their online habits and a way to gauge the success of your social media strategy.

DEMO, the technology launchpad conference co-produced by VentureBeat and IDG, is wrapping up, and we’ve selected the big winners among the more than 60 companies that showed off new products. Attendees (not demonstrators) voted for their favorite companies, and eXaudios won for its MagInify Call Center, a customer call center that detects callers’ emotions. With the People’s Choice award, eXaudios will get $1 million worth of free advertising in IDG publications like CIO Magazine, Computerworld, InfoWorld, Network World, and PC World.

VentureBeat Editor in Chief Matt Marshall, who is DEMO’s executive producer, also worked with the conference team to select DEMOgod winners in each category. These companies won based on the awesomeness of their presentations, the quality of their product, and whether they were generally nice and agreeable during the conference preparation process. The winner are:

Mobile — Zosh, which replaces the print/sign/fax machine with a mobile service.
Social media — Everloop, a social network for users between eight and 13 years old.
Cloud — Gwabbit, which creates a universal contact list across your devices and social networks.
Consumer technology — Phone Halo, which helps you find lost objects and notifies you when they’re stolen.
Enterprise – Restaurant 2.0, the new reservation system from BlueSkies Hospitality Management Systems that aims to overtake OpenTable.
Alpha Pitch — Uppy Media, a Facebook application that lets users tag outfits in photo albums.

Virtual currency platform gWallet is announcing a partnership with online privacy certification company TRUSTe to reinforce gWallet ethical guidelines in the virtual currency space. gWallet partners with both brands and game developers to bring users virtual currency offers on games within social networks.

Following the Scamville controversy in the virtual offers space, the startups which provide these offers on games have been working to rid their platforms of misleading offers. In fact, Offerpal CEO George Garrick promised to take a leadership position in cleaning up scammy ads. Competitor Gwallet has also promised to never offer these type of ads, and is now partnering with TRUSTe to certify gWallet’s privacy practices. TRUSTe will also monitor offers submitted by gWallet‘s advertisers to ensure they aren’t misleading. For example, previously fake quizzes would be tied to long term mobile subscriptions, malware-laden toolbar downloads and and other scams. And Gwallet is betting on TRUSTe to keep these offers at bay.

gWallet, which recently raised $10 million in funding, was founded by serial entrepreneur Gurbaksh Chahal. gWallet works directly with brands directly as opposed to adopting an affiliate leads model and uses branded video campaigns to engage with consumers. Disney, Best Buy, K-Mart, Nestle, Coke, and The History Channel are all using gWallet’s video campaigns on social networks, which are powered by Tube Mogul.

gWallet also announced an early-stage venture fund to invest in social gaming companies and promote innovation within the social gaming ecosystem. gWallet faces competition from Offerpal and SuperRewards.

Here’s our summary of the week’s business and tech news. First, the most popular stories we published in the last seven days:

Google pays web pioneer to bash Apple — Tim Bray isn’t as well-known as Sir Tim Berners-Lee, but the guy has had a leading role in defining the Internet. When he announced this week that he’s joining Google as an evangelist for the Android platform, he published a blog post that was pretty critical of competitor Apple, and which VentureBeat’s Paul Boutin found “off-putting.”

“>Fastest site on the web: The IRS? — Performance monitoring service Gomez has released its annual list of major websites with the best overall responsiveness as measured by Gomez over the entire year 2009. Surprise winner: IRS.gov, a site that uses images sparingly and pushes off large documents to PDF format for downloading, rather than trying to serve them as Web pages.

Facebook ousts Google as most popular U.S. site — Facebook is now the most popular site in the U.S., according to analytics firm Hitwise. In the week ending March 13, 2010, Facebook surpassed the previous most popular site, Google, in terms of overall traffic for the week.

Google admits Buzz mistakes, tries again at SXSW — A product manager from Google told attendees at the South by Southwest Interactive conference in Austin, Texas that Google had misstepped by launching its social network, Google Buzz, too broadly and too promiscuously. In the future, said Google’s Todd Jackson, the company will pre-test new features rather than roll them out to all customers at once.

“>Twitter launches “At Anywhere” platform, integrates tweets, profiles across the web — Twitter CEO Ev Williams demonstrated a new platform this week that will spread the microblogging network’s profiles, tweets, and possibly advertising across the web.

And here are five more stories we think are important, thought-provoking, or fun:

“>Evan Williams tries to do-over SXSW interview via Twitter — Although Twitter co-founder and and chief executive Evan Williams made a couple of interesting points during his keynote interview (and announced the ‘At Anywhere’ platform mentioned above), the consensus was that it did not go well. Following the tradition of journalist Sarah Lacy’s similarly-criticized interview with Facebook founder Mark Zuckerberg at SXSW in 2008, where Zuckerberg staged a second interview where he engaged more directly with the audience, Williams offered to answer more questions over Twitter.

Sony shows what an epic game really is with God of War III — Sony’s role in video games seems to be to remind us every now and then what an epic game is all about. It did so again with the launch of God of War III for the PlayStation 3.

Spotify CEO Daniel Ek vague on US launch, company has 320,000 paid subscribers — European music streaming service Spotify now has 320,000 paid subscribers, said chief executive Daniel Ek, speaking at the South by Southwest Interactive conference in Austin. But he couldn’t give a firm date on when the service would come to the United States.

FCC announces National Broadband Plan — The FCC finally unveiled the National Broadband Plan following months of speculation. The plan — for how to extend internet access to all American citizens — marks the first time that broadband access, and internet access in general, have been given considerable government attention in America.

EPA, Energy Dept. sharpen Energy Star’s teeth — The Energy Star program has successfully broken into the mainstream consciousness. But before last year, it seems like the label didn’t mean much. Now government agencies are making good on their promise to be tougher about who gets certified and who doesn’t, and they’re kicking the effort up another notch.

Tags: Energy Star, FCC, God of War III, Google Buzz, National Broadband Plan

Companies: Facebook, Gomez, Google, Sony, spotify, Twitter

People: daniel ek, Evan Williams, Tim Bray