TikTok inks licensing deal with Merlin to use music from independent labels in videos and new Resso streaming service

TikTok, the fast-growing user-generated video app from China’s Bytedance, has been building a new music streaming service to compete against the likes of Spotify, Apple Music and Amazon Music. And today it’s announcing a deal that helps pave the way for a global launch of it. It has inked a licensing deal with Merlin, the global agency that represents tens of thousands of independent music labels and hundreds of thousands of artists, for music from those labels to be used legally on the TikTok platform anywhere that the app is available.

The news is significant because this is the first major music licensing deal signed by TikTok as part of its wider efforts in the music industry. That includes both its mainstay short-form videos — where music plays a key role (the app, before it was acquired by Bytedance, was even called ‘Musically’) — as well as new music streaming services.

Specifically, a source close to TikTok has confirmed to TechCrunch that this Merlin deal covers its upcoming music subscription service Resso.

Resso was long rumoured and eventually spotted in the wild at the end of last year when Bytedance tested the app in India and Indonesia. Bytedance owns the Resso trademark, so it’s a good bet that it will make its way to more markets soon. (Possibly with features that differentiate this later entrant from others in the market? Recall Bytedance acquired an AI-based music startup called Jukedeck last year.)

“Independent artists and labels are such a crucial part of music creation and consumption on TikTok,” said Ole Obermann, global head of music for Bytedance and TikTok, in a statement. “We’re excited to partner with Merlin to bring their family of labels to the TikTok community. The breadth and diversity of the catalogue presents our users with an even larger canvas from which to create, while giving independent artists the opportunity to connect with TikTok’s diverse community.”

Music is a fundamental part of the TikTok experience, and this deal covers everything that’s there today — videos created by TikTok users, sponsored videos created for marketing — as well as whatever is coming up around the corner.

A music streaming app, which TikTok has reportedly been gearing up to launch for some time, is one way that the company could help generate revenue. Despite being one of the most popular apps of 2019, monetisation has largely eluded the company up to now.

One reason why monetising can’t happen is because of the lack of deals at the other end of the chain. As of December, TikTok had yet to sign any deals with the “majors” — Sony Music, Warner Music and Universal Music — and from what we understand Merlin is the first big deal of its kind of the company. However, there are signs that more such agreements may be coming soon. Obermann, who was hired away from Warner Music last year, in turn hired another former Warner colleague, Tracy Gardner, who now leads label licensing for the company. And just yesterday, the company opened an office in Los Angeles, the heart of the music industry.

The move to bring more licensed music usage to TikTok (and other Bytedance apps) is significant for other reasons, too.

On one hand, it’s about labels trying to evolve with the times, collecting revenues wherever audiences happen to be, whether that is in short-form user-generated video, in advertising that runs alongside that, or in a new music service capitalising on the new vogue for streamed media.

“This partnership with TikTok is very significant for us,” said Jeremy Sirota, CEO, Merlin, in a statement. “We are seeing a new generation of music services and a new era of music-related consumption, much of it driven by the global demand for independent music. Merlin members are increasingly using TikTok for their marketing campaigns, and today’s partnership ensures that they and their artists can also build new and incremental revenue streams.”

One the other hand, the deal is significant also because it underscores how TikTok is increasingly working to legitimise itself in the wider tech and media marketplace.

While Bytedance’s acquisition of TikTok continues to face regulatory scrutiny, the company has been working on ways to assert its independence from China’s control, which has included many clarifications about where its content is hosted (not China! it says) and even a search for a new US-based CEO. On another front, more licensing deals should also help the company with the many legal and PR issues that have been hanging over it concerning how it pays out when music is used in its popular app.

Babylon Health is building an integrated, AI-based health app to serve a city of 300K in England

After announcing a $550 million fundraise last August, U.K. AI-based health services startup Babylon Health is putting some of that money to use with its widest-ranging project to date. The company has inked a 10-year deal with the city of Wolverhampton in England to provide an integrated health app covering 300,000 people, the entire population of the city.

The financial terms of the deal are not being disclosed, but Babylon confirmed that the NHS is not taking a stake in the startup as part of it. The plan is to start rolling out the first phase of the app by the end of this year.

Babylon Health is known for building AI-based platforms that help diagnose patients’ issues. Babylon’s services are provided as a complement to seeing actual clinicians — the idea being that the interactions and AI can speed up some of the work of getting people seen and into the system. Some of Babylon’s best known work to date has been a chatbot that it built for the NHS in the U.K., and, in addition to working with a number of private businesses on their employee healthcare services, it is also now in the process of rolling out services in 11 countries in Asia. (In August, Babylon said it was delivering 4,000 clinical consultations each day, or one patient interaction every 10 seconds; covering 4.3 million people worldwide; with more than 1.2 million digital consultations completed to date.)

Even with all these milestones passed — milestones that have helped catapult Babylon to a $2 billion valuation — its latest project will be its most ambitious to date: it will be the first time that Babylon works on a project that combines both hospital and primary medical care into an all-in-one app.

“We are extremely proud of this exciting 10-year partnership with RWT which will benefit patients and the NHS as a whole,” said Ali Parsa, CEO and founder of Babylon, in a statement. “We have over 1,000 AI experts, clinicians, engineers and scientists who will be helping to make Digital-First Integrated Care a reality and provide fast, effective, proactive care to patients. Together with RWT, we can demonstrate this works and help the NHS lead healthcare across the world.”

The plan is for Babylon and the Royal Wolverhampton NHS Trust — the local health authority and body that will oversee the work for the city’s population — to build an app that will not only provide remote diagnoses, but also live monitoring of patients with chronic conditions (using wearables and other monitoring apps) and the ability to connect people with doctors and others remotely.

Other services will include the ability to let patients access their own medical records and review their own consultations; book appointments; renew prescriptions; view a “digital twin” of their own state of health based on medical history and other details; and manage their rehab after a procedure, illness or injury.

The gap in the market that Babylon is tackling is the fact that many countries are seeing populations that are both growing bigger and generally living longer, and that is putting a strain not just on public health services, but also those that are managed completely or partly privately. This has been a particularly painful theme in Babylon’s home market, the U.K., where healthcare is nationalised and is regularly facing budgetary and human capital shortages, but there is no infrastructure (or consumer finance) to supplement that for the majority of people.

The aim, however, goes beyond simply filling NHS gaps; it’s also about trying to build services that fit better with how people live, for example to provide them with certain services at home to save them from coming into, say, a hospital to be treated if the condition merits it.

“We know from our active engagement with patients of all ages and backgrounds that they are keen to use technology that will improve access and give them greater control of their own health, wellbeing and social inclusion,” said Trust Chief Executive David Loughton, CBE, in a statement. “For example, it should be normal for a patient with a long-term condition to take a blood-test at home, have the results fed into their app which alerts the specialist if they need an appointment. The patient chooses a time to meet, has the consultation through the app, works with their specialist to build a care plan, and the app encourages them to complete it whilst assessing the impact it’s having. This is our vision for properly joined-up and integrated care.”

AI has become a major theme in the drive to improve healthcare and medicine overall, primarily through two main areas: providing diagnostic and other services to patients in situations, acting in roles that would otherwise be played by humans; and in research, acting as a “super brain” to help perform complex calculations in the quest for better drug discovery, disease pathology and other areas that would take humans far longer to do on their own.

Well aware of the strains on health systems, startups, investors and other stakeholders have jumped into using AI in the hopes of creating more efficiency and potentially better outcomes. But that doesn’t mean that all the outcomes have actually been better. Google’s DeepMind encountered a lot of controversy around how it handled patient data in its own NHS deals, leading to questions and investigations that have now stretched into years. And BenevolentAI — which has been working on drug discovery — found itself raising money last year in round that devalued the loss-making company by half.

Paul Bate, Babylon’s MD of NHS services, noted in an interview that Babylon is mindful of patient privacy and consent, and notes that the service is opt-in and transparent in its data usage when engaging users. He declined to comment on how and when data will be retained by the NHS or by Babylon (or both) but said it would be made clear in the app when it is launched.

“It’s not a simple answer to say whether one body or another will keep it, but it will be transparent, both for US and the NHS, when it launches,” he added.

Amazon Music passes 55M customers across its free and paid tiers, but still lags behind Spotify and Apple

Amazon Music, the streaming music service from the e-commerce and cloud giant that competes against the likes of Spotify and Apple Music, announced a milestone in its growth today: it has passed 55 million customers across the six different pricing tiers that it offers for the service, ranging from $15 per month through to a free, ad-supported tier.

The numbers represent a strong leap forward for the service, which launched in October 2016. But in the bigger race to tie down consumers making the move to streaming services with recurring subscriptions, Amazon still lags behind Apple Music, which last summer said it passed 60 million paying users, and Spotify, which last quarter said it now had 248 million users globally, 113 million of them paying.

Amazon does not break out how many users are in each of its tiers, although we are asking and will update if we learn more. The overall figure, Amazon said, includes growth of more than 50% for the top tier, called Amazon Music Unlimited, which includes HD-quality tracks for about 50 million songs in the U.S., UK, Germany, Japan and most recently Brazil. Other countries without HD-quality where Amazon Music is available include France, Italy, Spain, and Mexico, and it notes that customers more than doubled in these four countries.

“We’re proud to reach this incredible milestone and are overwhelmed by our customers’ response to Amazon Music,” said Steve Boom, VP of Amazon Music, in a statement. “Our strategy is unique and, like everything we do at Amazon, starts with our customers. We’ve always been focused on expanding the marketplace for music streaming by offering music listener’s unparalleled choice because we know that different listeners have different needs. As we continue to lead in our investment in voice with Alexa, and in high-quality audio with Amazon Music HD, we’re excited to bring our customers and the music industry even more innovation in 2020 and beyond.”

As with other Amazon products and services, the company has built its music offering around cross-selling existing customers — namely those who are already using or considering its Prime membership service — which helps Amazon with its economies of scale (promotions to customers who are already getting promotions cost less, for starters); and target consumers who are happy with the convenience of having all of its services under one bill. The discount for Prime users also serves as a sweetener for those considering subscribing to the membership tier.

Prime users get a discount on both single subscriptions the Unlimited service ($7.99/month or $79/year) and Family plans. Similarly those who only subscribe on a single device, either the Fire TV or Echo, can pay $3.99/month for the service. The ad-supported service gives a smaller range of tracks, playlists and stations for free with advertising interspersed.

The general stickiness of Amazon media services — which include storage, video, reading, games and more — is a model that Apple is also following, building out a range of its own content offerings alongside those of the third-party apps in the App Store. Spotify has taken a more music- and audio-first approach, with its forays into areas like video never quite gaining traction. In its last earnings, the company addressed its place in the market.

Specifically, it noted that Amazon appears to be picking up more ad-supported than paying users at the moment, leaving an opening for Spotify to continue growing that business.

“We continue to feel very good about our competitive position in the market,” it noted in a statement. “Relative to Apple, the publicly available data shows that we are adding roughly twice as many subscribers per month as they are. Additionally, we believe that our monthly engagement is roughly 2x as high and our churn is at half the rate. Elsewhere, our estimates imply that we continue to add more users on an absolute basis than Amazon. Our data also suggests that Amazon’s user base skews significantly more to ‘Ad-Supported’ than ‘Premium’, and that average engagement on our platform is approximately 3x.”

 

 

 

Intezer raises $15M for its DNA-style ‘genetic’ approach to identifying and tracking malware code

As the total cost of cybercrime reaches into trillions of dollars and continues to rise, a firm called Intezer — which  has built a way to analyse, identify and eradicate malware by way of an ordering system similar to what’s used when mapping out DNA — has raised $15 million to double down on growth.

The funding, a Series B, is being led by OpenView Partners, the VC with a focus on expansion rounds for enterprise software companies, with participation from previous investors Intel Capital (which led the Series A in 2017), Magma, Samsung NEXT, USAA, and Alon Cohen, the founder and former CEO of CyberArk, who is also a co-founder of Intezer. The company is not disclosing its funding; it has raised a relatively modest $25 million to date.

Itai Tevet, Intezer’s other co-founder and CEO who had previously run the Cyber Incident Response Team (CERT) in Israel’s IDF, notes that the startup’s customers include “Fortune 500 companies, late stage startups, and elite government agencies” (it doesn’t disclose any specific names). In an interview, he said Intezer will be using the funding both to expand that list — through two products it currently offers, Intezer Protect and Intezer Analyze (which comes without remediation) — and also to explore how to apply its model to other areas under threat from malicious cyberattacks not traditionally associated with malware.

“Because our technology deals with binary code in general, it’s applicable in many different ways,” he said. “Since any digital device runs binary code (even drones, medical devices, smart phones, …), our technology has the potential to create a big impact in numerous aspects of cyber security to provide visibility, control and protection from any unauthorized and malicious code.”

Intezer describes its technique as “genetic malware analysis”, and the basic premise is that “all software, whether legitimate or malicious, is comprised of previously written code,” Tevet said. (He said he first came up with this revelation at the IDF, where he was “dealing with the best cyber attackers in the world,” later working with Cohen and a third co-founder Roy Halevi, to perfect the idea.)

Intezer therefore has built software that can “map” out different malware, making connections by detecting code reuse and code similarities, which in turn can help it identify new threats, and help put a stop to them.

There is a reason why cybercriminals reuse code, and it has to do with economies of scale: they can reuse and work faster. Conversely, it also becomes “exponentially harder for them to launch a new attack campaign since they would need to start completely from scratch,” Tevet notes.

While there are literally hundreds of startups now on the market building ways to identify, mitigate and remediate the effects of malware on systems, Intezer claims to stand apart from the pack.

“The vast majority of security systems in the market today detect threats by looking for anomalies and other indicators of compromise,” usually using machine learning and AI, but Tevet adds that this “can be evaded by ‘blending in’ as normal activity.” One consequence of that is that these methods also drown security teams with vague and false-positive alerts, he added. “On the other hand, Intezer doesn’t look for the symptoms of the attack, but can actually uncover the origins of the root cause of nearly all cyber attacks — the code itself.”

The startup’s proof is in the pudding so to speak: it has scored some notable successes to date through its use. Intezer was the first to identify that WannaCry came out of North Korea; it built a code map that helped provide the links between the Democratic National Committee breach and Russian hackers; and most recently it identified a new malware family called “HiddenWasp” linked specifically to Linux systems.

Itai Tevet, the co-founder and CEO, says that “hands down,” Linux-focused threats are the biggest issue of the moment.

“Everybody’s talking about cloud security but it is rarely discussed that Linux malware is a thing,” he said in an interview. “Since the dawn of cloud and IoT, Linux has become the most common operating system and, in turn, the biggest prize for hackers.” He added that in the more traditional enterprise landscape, “banking trojans such as Emotet and Trickbot remain the most common malware families seen in the wild.”

“Itai, Roy and the team at Intezer possess a rare expertise in incident response, malware analysis, and reverse engineering having mitigated many nation-state sponsored threats in the past,” said Scott Maxwell, founder and managing partner of OpenView, in a statement. “The Genetic Malware Analysis technology they’ve developed represents the next-generation of cyber threat detection, classification, and remediation. We’re excited to support them as they build a category-defining company.”

Gartner forecast: 2020 to see 0.9% bump in global device shipments thanks to 5G, then 2 more years of decline

The analysts at Gartner have published their latest global device forecast, and while 2020 looks like it may be partly sunny, get ready for more showers and poor weather ahead. Gartner predicts that a bump from new 5G technology will lead to total shipments of 2.16 billion units — devices that include PCs, mobile handsets, watches, and all sizes of computing devices in between — working out to a rise of 0.9% compared to 2019.

That’s a modest reversal after what was a rough year for hardware makers who battled with multiple headwinds that included — for mobile handsets — a general slowdown in renewal cycles and high saturation of device ownership in key markets; and — in PCs — the wider trend of people simply buying fewer of these bigger machines as their smartphones get smarter (and bigger).

As a point of comparison, last year Gartner revised its 2019 numbers at least three times, starting from “flat shipments” and ending at nearly four percent decline. In the end, 2019 saw shipments of 2.15 billion units — the lowest number since 2010.

“2020 will witness a slight market recovery,” writes Ranjit Atwal, research senior director at Gartner. “Increased availability of 5G handsets will boost mobile phone replacements, which will lead global device shipments to return to growth in 2020.”

(Shipments, we should note, do not directly equal sales, but they are used as a marker of how many devices are ordered in the channel for future sales. Shipments precede sales figures: overestimating results in oversupply and overall slowdown.)

The idea that 5G will drive more device sales, however, is still up for debate. Some have argued that while carriers are going hell for leather in their promotion of 5G, the idea of special 5G apps and services that will spur adoption of those devices is not as apparent, and that’s leading to it being more of an abstract concept, and not one that is leading the charge when it comes to apps and services.

Still, it may be that hardware might march on ahead regardless. Gartner predicts that 5G devices will account for 12% of all mobile phone shipments in 2020 as handset makers make their devices “5G ready,” with the proportion increasing to 43% by 2022. “From 2020, Gartner expects an increase in 5G phone adoption as prices decrease, 5G service coverage increases and users have better experiences with 5G phones,” writes Atwal. “The market will experience a further increase in 2023, when 5G handsets will account for over 50% of the mobile phones shipped.” That may in part be simply because handset makers are making their devices “5G ready”

Drilling down into the numbers, Gartner believes that worldwide, phones will see a bump of 1.7% this year, up to 1.78 billion before declining again in 2021 to 1.77 billion and then further in 2022 to 1.76 billion. Asia and in particular China and emerging markets will lead the charge. Another analyst, Counterpoint, has been tracking marketshare for individual handset makers and notes that Samsung remains the world’s biggest handset maker going into Q4 2019 (final numbers on that quarter should be out in the coming weeks), with 21% of all shipments and slight increases over the year, but with the BBK group (which owns OPPO, Vivo, Realme, and OnePlus) likely to pass it, Huawei and Apple to become the world’s largest, as it’s growing much faster. Numbers overall were dragged down by declines for Apple, the world’s number-three handset maker.

Although the market was generally lower across all devices, PC shipments actually saw some growth in 2019. That is set to turn down again this year, to 251 million units, and declining further to 247 million in 2021 and 242 million in 2022.

Part of that is due to slower migration trends — Windows 10 adoption was the primary driver for people switching up and buying new devices last year, but now that’s more or less finished. That will see slower purchasing among enterprise end users, although later adopters in the SME segment will finally make the change when support for Windows it 7 finally ends this month (it’s been on the cards for years at this point). In any case, the upgrade cycle is changing because of how Windows is evolving.

“The PC market’s future is unpredictable because there will not be a Windows 11. Instead, Windows 10 will be upgraded systematically through regular updates,” writes Atwal “As a result, peaks in PC hardware upgrade cycles driven by an entire Windows OS upgrade will end.”

Two trends that Gartner does not highlight but should also be noted: the first is the role that Chromebooks might play in the PC market, where were one of the faster-growing categories last year, and will this year see even more models rolled out, with what hardware makers hope will be even more of a boost in functionality to drive adoption. (Google and Intel’s collaboration is one example of how that will work: the two are working on a set of standards that will fit with chips made by Intel to produce what the companies believe are more efficient and compelling notebooks, with tablet-like touchscreens, better battery life, smaller and lighter form factors, and more.)

The second is whether or not smartwatches will make a significant indent into the overall device market. While there have been a number of smartwatch hopefuls in the market, one of the biggest successes has been the Apple Watch, which indeed saw its growth outstrip other hardware categories for the company in what was a difficult year for the company. Whether that will continue, and potentially see others joining in, will be an interesting area to “watch.”

DigitalOcean is laying off staff, sources say 30-50 affected

After appointing a new CEO and CFO last summer, cloud infrastructure provider DigitalOcean is embarking on a wider reorganisation: the startup has announced a round of layoffs, with potentially between 30 and 50 people affected.

DigitalOcean has confirmed the news with the following statement:

“DigitalOcean recently announced a restructuring to better align its teams to its go-forward growth strategy. As part of this restructuring, some roles were, unfortunately, eliminated. DigitalOcean continues to be a high-growth business with $275M in [annual recurring revenues] and more than 500,000 customers globally. Under this new organizational structure, we are positioned to accelerate profitable growth by continuing to serve developers and entrepreneurs around the world.”

Before the confirmation was sent to us this morning, a number of footprints began to emerge last night, when the layoffs first hit, with people on Twitter talking about it, some announcing that they are looking for new opportunities and some offering help to those impacted. Inbound tips that we received estimate the cuts at between 30 and 50 people. With around 500 employees (an estimate on PitchBook), that would work out to up to 10% of staff affected.

It’s not clear what is going on here — we’ll update as and when we hear more — but when Yancey Spruill and Bill Sorenson were respectively appointed CEO and CFO in July 2019 (Spruill replacing someone who was only in the role for a year), the incoming CEO put out a short statement that, in hindsight, hinted at a refocus of the business in the near future:

“My aspiration is for us to continue to provide everything you love about DO now, but to also enhance our offerings in a way that is meaningful, strategic and most helpful for you over time.”

The company provides a range of cloud infrastructure services to developers, including scalable compute services (“Droplets” in DigitalOcean terminology), managed Kubernetes clusters, object storage, managed database services, Cloud Firewalls, Load Balancers and more, with 12 data centers globally. It says it works with more than 1 million developers across 195 countries. It has also been expanding the services that it offers to developers, including more enhancements in its managed database services, and a free hosting option for continuous code testing in partnership with GitLab.

All the same, as my colleague Frederic pointed out when DigitalOcean appointed its latest CEO, while developers have generally been happy with the company, it isn’t as hyped as it once was, and is a smallish player nowadays.

And in an area of business where economies of scale are essential for making good margins on a business, it competes against some of the biggest leviathans in tech: Google (and its Google Cloud Platform), Amazon (which as AWS) and Microsoft (with Azure). That could mean that DigitalOcean is either trimming down as it talks to investors for a new round; or to better conserve cash as it sizes up how best to compete against these bigger, deep-pocketed players; or perhaps to start thinking about another kind of exit.

In that context, it’s notable that the company not only appointed a new CFO last summer, but also a CEO with prior CFO experience. It’s been a while since DigitalOcean has raised capital. According to PitchBook data, DigitalOcean last raised money in 2017, an undisclosed amount from Mighty Capital, Glean Capital, Viaduct Ventures, Black River Ventures, Hanaco Venture Capital, Torch Capital and EG Capital Advisors. Before that, it took out $130 million in debt, in 2016. Altogether it has raised $198 million, and its last valuation was from a round in 2015, $683 million.

It’s been an active week for layoffs among tech startups. Mozilla laid off 70 employees this week; and the weed delivery platform Eaze is also gearing up for more cuts amid an emergency push for funding.

We’ll update this post as we learn more. Best wishes to those affected by the news.

Marijuana delivery giant Eaze may go up in smoke

The first cannabis startup to raise big money in Silicon Valley is in danger of burning out. TechCrunch has learned that pot delivery middleman Eaze has seen unannounced layoffs, and its depleted cash reserves threaten its ability to make payroll or settle its AWS bill. Eaze was forced to raise a bridge round to keep the lights on as it prepares to attempt major pivot to ‘touching the plant’ by selling its own marijuana brands through its own depots.

If Eaze fails, it could highlight serious growing pains amid the ‘green rush’ of startups into the marijuana business.

Eaze, the startup backed by some $166 million in funding that once positioned itself as the “Uber of pot” — a marketplace selling pot and other cannabis products from dispensaries and delivering it to customers — has recently closed a $15 million bridge round, according to multiple source. The fund was meant to keep the lights on as Eaze struggles to raise its next round of funding amid problems with making decent margins on its current business model, lawsuits, payment processing issues, and internal disorganization.

 

An Eaze spokesperson confirmed that the company is low on cash. Sources tell us that the company, which laid off some 30 people last summer, is preparing another round of cuts in the meantime. The spokesperson refused to discuss personnel issues but noted that there have been layoffs at many late stage startups as investors want to see companies cut costs and become more efficient.

From what we understand, Eaze is currently trying to raise a $35 million Series D round according to its pitch deck. The $15 million bridge round came from unnamed current investors. (Previous backers of the company include 500 Startups, DCM Ventures, Slow Ventures, Great Oaks, FJ Labs, the Winklevoss brothers, and a number of others.) Originally, Eaze had tried to raise a $50 million Series D, but the investor that was looking at the deal, Athos Capital, is said to have walked away at the eleventh hour.

Eaze is going into the fundraising with an enterprise value of $388 million, according to company documents reviewed by TechCrunch. It’s not clear what valuation it’s aiming for in the next round.

An Eaze spokesperson declined to discuss fundraising efforts but told TechCrunch, “The company is going through a very important transition right now, moving to becoming a plant-touching company through acquisitions of former retail partners that will hopefully allow us to more efficiently run the business and continue to provide good service to customers.

Desperate to grow margins

The news comes as Eaze is hoping to pull off a “verticalization” pivot, moving beyond online storefront and delivery of third-party products (rolled joints, flower, vaping products and edibles) and into sourcing, branding and dispensing the product directly. Instead of just moving other company’s marijuana brands between third-party dispensaries and customers, it wants to sell its own in-house brands through its own delivery depots to earn a higher margin. With a number of other cannabis companies struggling, the hope is that it will be able to acquire brands in areas like marijuana flower, pre-rolled joints, vaporizer cartridges, or edibles at low prices.

An Eaze spokesperson confirmed that the company plans to announce the pivot in the coming days, telling TechCrunch that it’s “a pretty significant change from provider of services to operating in that fashion but also operating a depot directly ourselves.”

The startup is already making moves in this direction, and is in the process of acquiring some of the assets of a bankrupt cannabis business out of Canada called Dionymed — which had initially been a partner of Eaze’s, then became a competitor, and then sued it over payment disputes, before finally selling part of its business. These assets are said to include Oakland dispensary Hometown Heart, which it acquired in an all-share transaction (“Eaze effectively bought the lawsuit,” is how one source described the sale). This will become Eaze’s first owned delivery depot.

In a recent presentation deck that Eaze has been using when pitching to investors — which has been obtained by TechCrunch — the company describes itself as the largest direct-to-consumer cannabis retailer in California. It has completed more than 5 million deliveries, served 600,000 customers and tallied up an average transaction value of $85. 

To date, Eaze has only expanded to one other state beyond California, Oregon. Its aim is to add five more states this year, and another three in 2021. But the company appears to have expected more states to legalize recreational marijuana sooner, which would have provided geographic expansion. Eaze seems to have overextended itself too early in hopes of capturing market share as soon as it became available.

An employee at the company tells us that on a good day Eaze can bring in between $800,000 and $1 million in net revenue, which sounds great, except that this is total merchandise value, before any cuts to suppliers and others are made. Eaze makes only a fraction of that amount, one reason why it’s now looking to verticatlize into more of a primary role in the ecosystem. And that’s before considering all of the costs associated with running the business. 

Eaze is suffering from a problem rampant in the marijuana industry: a lack of working capital. Since banks often won’t issue working capital loans to weed-related business, deliverers like Eaze can experience delays in paying back vendors. A source says late payments have pushed some brands to stop selling through Eaze.

Another drain on its finances have been its marketing efforts. A source said out-of-home ads (billboards and the like) allegedly were a significant expense at one point. It has to compete with other pot purchasing options like visiting retail stores in person, using dispensaries’ in-house delivery services, or buying via startups like Meadow that act as aggregated online points of sale for multiple dispensaries.

Indeed, Eaze claims that its pivot into verticalization will bring it $204 million in revenues on gross transactions of $300 million. It notes in the presentation that it makes $9.04 on an average sale of $85, which will go up to $18.31 if it successfully brings in ‘private label’ products and has more depot control.

Selling weed isn’t eazy

The poor margins are only one of the problems with Eaze’s current business model, which the company admits in its presentation have led to an inconsistent customer experience and poor customer affinity with its brand — especially in the face of competition from a number of other delivery businesses.  

Playing on the on-demand, delivery-of-everything theme, it connected with two customer bases. First, existing cannabis consumers already using some form of delivery service for their supply; and a newer, more mainstream audience with disposable income that had become more interested in cannabis-related products but might feel less comfortable walking into a dispensary, or buying from a black market dealer.

It is not the only startup that has been chasing that audience. Other competitors in the wider market for cannabis discovery, distribution and sales include Weedmaps, Puffy, Blackbird, Chill (a brand from Dionymed that it founded after ending its earlier relationship with Eaze), and Meadow, with the wider industry estimated to be worth some $11.9 billion in 2018 and projected to grow to $63 billion by 2025.

Eaze was founded on the premise that the gradual decriminalisation of pot — first making it legal to buy for medicinal use, and gradually for recreational use — would spread across the US and make the consumption of cannabis-related products much more ubiquitous, presenting a big opportunity for Eaze and other startups like it. 

It found a willing audience among consumers, but also tech workers in the Bay Area, a tight market for recruitment. 

“I was excited for the opportunity to join the cannabis industry,” one source said. “It has for the most part has gotten a bad rap, and I saw Eaze’s mission as a noble thing, and the team seemed like good people.”

Eaze CEO Ro Choy

That impression was not to last. The company, this employee was told when joining, had plenty of funding with more on the way. The newer funding never materialised, and as Eaze sought to figure out the best way forward, the company cycled through different ideas and leadership: former Yammer executive Keith McCarty, who cofounded the company with Roie Edery (both are now founders at another Cannabis startup, Wayv), left, and the CEO role was given to another ex-Yammer executive, Jim Patterson, who was then replaced by Ro Choy, who is the current CEO. 

“I personally lost trust in the ability to execute on some of the vision once I got there,” the ex-employee said. “I thought that on one hand a picture was painted that wasn’t the truth. As we got closer and as I’d been there longer and we had issues with funding, the story around why we were having issues kept changing.” Several sources familiar with its business performance and culture referred to Eaze as a “shitshow”.

No ‘Push For Kush’

The quick shifts in strategy were a recurring pattern that started well before the company got tight financial straits. 

One employee recalled an acquisition Eaze made several years ago of a startup called Push for Pizza. Founded by five young friends in Brooklyn, Push for Pizza had gone viral over a simple concept: you set up your favourite pizza order in the app, and when you want it, you pushed a single button to order it. (Does that sound silly? Don’t forget, this was also the era of Yo, which was either a low point for innovation, or a high point for cynicism when it came to average consumer intelligence… maybe both.)

Eaze’s idea, the employee said, was to take the basics of Push for Pizza and turn it into a weed app, Push for Kush. In it, customers could craft their favourite mix and, at the touch of a button, order it, lowering the procurement barrier even more.

The company was very excited about the deal and the prospect of the new app. They planned a big campaign to spread the word, and held an internal event to excite staff about the new app and business line. 

“They had even made a movie of some kind that they showed us, featuring a caricature of Jim” — the CEO at a the time — “hanging out of the sunroof of a limo.” (I’ve been able to find the opening segment of this video online, and the Twitter and Instagram accounts that had been created for Push for Kush, but no more than that.)

Then just one week later, the whole plan was scrapped, and the founders of Push for Pizza fired. “It was just brushed under the carpet,” the former employee said. “No one could get anything out of management about what had happened.”

Something had happened, though: the company had been taking payments by card when it made the acquisition, but the process was never stable and by then it had recently gone back to the cash-only model. Push for Kush by cash was less appealing. “They didn’t think it would work,” the person said, adding that this was the normal course of business at the startup. “Big initiatives would just die in favor of pushing out whatever new thing was on the product team’s radar.” 

Eaze’s spokesperson confirmed that “we did acquire Push For Pizza . . but ultimately didn’t choose to pursue [launching Push For Kush].”

Payments were a recurring issue for the startup. Eaze started out taking payments only in cash — but as the business grew, that became increasingly problematic. The company found itself kicked off the credit card networks and was stuck with a less traceable, more open to error (and theft) cash-only model at a time when one employee estimated it was bringing in between $800,000 and $1 million per day in sales. 

Eventually, it moved to cards, but not smoothly: Visa specifically did not want Eaze on its platform. Eaze found a workaround, employees say, but it was never above board, which became the subject of the lawsuit between Eaze and Dionymed. Currently the company appear to only take payments via debit cards, ACH transfer, and cash, not credit card.

Another incident sheds light on how the company viewed and handled security issues. 

Can Eaze rise from the ashes?

At one point, employees allegedly discovered that Eaze was essentially storing all of its customer data — including users’ signatures and other personal information — in an Azure bucket that was not secured, meaning that if anyone was nosing around, it could be easily discovered and exploited.

The vulnerability was brought to the company’s attention. It was something that was up to product to fix, but the job was pushed down the list. It ultimately took seven months to patch this up. “I just kept seeing things with all these huge holes in them, just not ready for prime time,” one ex-employee said of the state of products. “No one was listening to engineers, and no one seemed to be looking for viable products.” Eaze’s spokesperson confirms a vulnerability was discovered but claims it was promptly resolved.

Today, the issue is a more pressing financial one: the company is running out of money. Employees have been told the company may not make its next payroll, and AWS will shut down its servers in two days if it doesn’t pay up. 

Eaze’s spokesperson tried to remain optimistic while admitting the dire situation the company faces. “Eaze is going to continue doing everything we can to support customers and the overall legal cannabis industry. We’re excited about the future and acknowledge the challenges that the entire community is facing.”

As medicinal and recreational marijuana access became legal in some states in the latter 2010s, entrepreneurs and investors flocked to the market. They saw an opportunity to capitalize on the end of a major prohibition — a once in a lifetime event. But high government taxes, enduring black markets, intense competition, and a lack of financial infrastructure willing to deal with any legal haziness have caused major setbacks.

While the pot business might sound chill, operations like Eaze depend on coordinating high-stress logistics with thin margins and little room for error. Plenty of food delivery startups from Sprig to Munchery went under after running into similar struggles, and at least banks and payment processors would work with them. With the odds stacked against it, Eaze has a tough road ahead.

Felix Capital closes $300M fund to double down on DTC, break into fintech and make late-stage deals

To kick off 2020, one of Europe’s newer — and more successful — investment firms has closed a fresh, oversubscribed fund, one sign that VC in the region will continue to run strong in the year ahead after startups across Europe raised some $35 billion in 2019. Felix Capital, the London firm founded by Frederic Court that was one of the earlier firms to identify and invest in the trend of direct-to-consumer businesses, has raised $300 million, money that it plans to use to continue investing in creative and consumer startups and platform plays as well as begin to tap into a newer area, fintech — specifically startups that are focused on consumer finance. 

Felix up to now has focused mostly on earlier-stage investments — it now has $600 million under management and 32 companies in its portfolio in eight countries — based across both Europe and the US. Court said in an interview that a portion of this fund will now also go into later, growth rounds, both for companies that Felix has been backing for some time as well as newer faces.

As with the focus of the investments, the make-up of the fund itself has a strong European current: the majority of the LPs are European, Court noted. Although Asia is something it would like to tackle more in the future both as a market for its current portfolio and as an investment opportunity, he added, the firm has yet to invest into the region or substantially raise money from it.

Felix made its debut in 2015, founded by Court after a strong run at Advent Capital where he was involved in a number of big exits. While Court had been a strong player in enterprise software, Felix was a step-change for him into more of a primary focus on consumer startups focused on fashion, lifestyle and creative pursuits.

That has over the years included investing in companies like the breakout high-fashion marketplace Farfetch (which he started to back when still at Advent and is now public), Gwyneth Paltrow’s GOOP, the jewellery startup Mejuri, trend-watching HighSnobiety, and fitness startup Peloton (which has also IPO’d).

It’s not an altogether easygoing, vanilla list of cool stuff. Peloton and GOOP have had been mightily doused in snarky and sharky sentiments; and sometimes it even seems as if the brands themselves own and cultivate that image. As the saying goes, there’s no such thing as bad press, I guess.

Although it wasn’t something especially articulated in startup land at the time of Felix’s launch, what the firm was honing in on was a rising category of direct-to-consumer startups, essentially all in the area of e-commerce and building brands and businesses that were bypassing traditional retailers and retail channels to develop primary relationships with consumers through newer digital channels such as social media, messaging and email (alongside their own DTC websites). 

This is not all that the company has focused on, with investments into a range of platform businesses like corporate travel site TravelPerk, Amazon -backed food delivery juggernaut Deliveroo and Moonbug (a platform for children’s entertainment content), as well as increasingly later stage rounds (for example it was part of a $104 million round at TravelPerk; a $70 million round for marketplace-building service Mirakl; and $23 million for Mejuri.

Court’s track record prior to Felix, and the success of the current firm to date, are two likely reasons why this latest fund was oversubscribed, and why Court says it wants to further spread its wings into a wider range of areas and investment stages.

The interest in consumer finance is not such a large step away from these areas, when you consider that they are just the other side of the coin from e-commerce: saving money versus spending money.

“We see this as our prism of opportunity,” said Court. “Just as we had the intuition that there was a space for investors looking at [DTC]… we now think there is enough evidence that there is demand from consumers for new ways of dealing with money and personal finance.”

The firm has from the start operated with a board of advisors who also invest money through Felix while also holding down day jobs. They include the likes of executives from eBay, Facebook, and more. David Marcus –who Court backed when he built payments company Zong and eventually sold it to eBay before he went on to become a major mover and shaker at Facebook and is now has the possibly Sisyphean task of building Calibra — is on the list, but that has not translated into Felix dabbling in cryptocurrency.

“We are watching cryptocurrency, but if you take a Felix stance on the area, it’s only had one amazing brand so far, bitcoin,” said Court. “The rest, for a consumer, is very difficult to understand and access. It’s still really early, but I’ve got no doubt that there will be some things emerging, particularly around the idea of ‘invisible money.'”

US patents hit record 333,530 granted in 2019; IBM, Samsung (not the FAANGs) lead the pack

We may have moved on from a nearly-daily cycle of news involving tech giants sparring in courts over intellectual property infringement, but patents continue to be a major cornerstone of how companies and people measure their progress and create moats around the work that they have done in hopes of building that into profitable enterprises in the future. IFI Claims, a company that tracks patent activity in the US, released its annual tally of IP work today underscoring that theme: it noted that 2019 saw a new high-watermark of 333,530 patents granted by the US Patent and Trademark Office.

The figures are notable for a few reasons. One is that this is the most patents ever granted in a single year; and the second that this represents a 15% jump on a year before. The high overall number speaks to the enduring interest in safeguarding IP, while the 15% jump has to do with the fact that patent numbers actually dipped last year (down 3.5%) while the number that were filed and still in application form (not granted) was bigger than ever. If we can draw something from that, it might be that filers and the USPTO were both taking a little more time to file and process, not a reduction in the use of patents altogether.

But patents do not tell the whole story in another very important regard.

Namely, the world’s most valuable, and most high profile tech companies are not always the ones that rank the highest in patents filed.

Consider the so-called FAANG group, Facebook, Apple, Amazon, Netflix and Google: Facebook is at number-36 (one of the fastest movers but still not top 10) with 989 patents; Apple is at number-seven with 2,490 patents; Amazon is at number-nine with 2,427 patents; Netflix doesn’t make the top 50 at all; and the Android, search and advertising behemoth Google is merely at slot 15 with 2,102 patents (and no special mention for growth).

Indeed, the fact that one of the oldest tech companies, IBM, is also the biggest patent filer almost seems ironic in that regard.

As with previous years — the last 27, to be exact — IBM has continued to hold on to the top spot for patents granted, with 9,262 in total for the year. Samsung Electronics, at 6,469, is a distant second.

These numbers, again, don’t tell the whole story: IFI Claims notes that Samsung ranks number-one when you consider all active patent “families”, which might get filed across a number of divisions (for example a Samsung Electronics subsidiary filing separately) and count the overall number of patents to date (versus those filed this year). In this regard, Samsung stands at 76,638, with IBM the distant number-two at 37,304 patent families.

Part of this can be explained when you consider their businesses: Samsung makes a huge range of consumer and enterprise products. IBM, on the other hand, essentially moved out of the consumer electronics market years ago and these days mostly focuses on enterprise and B2B and far less hardware. That means a much smaller priority placed on that kind of R&D, and subsequent range of families.

Two other areas that are worth tracking are biggest movers and technology trends.

In the first of these, it’s very interesting to see a car company rising to the top. Kia jumped 58 places and is now at number-41 (921 patents) — notable when you think about how cars are the next “hardware” and that we are entering a pretty exciting phase of connected vehicles, self-driving and alternative energy to propel them.

Others rounding out fastest-growing were Hewlett Packard Enterprise, up 28 places to number-48 (794 patents); Facebook, up 22 places to number-36 (989 patents); Micron Technology, up nine places to number-25 (1,268), Huawei, up six places to number-10 (2,418), BOE Technology, up four places to number-13 (2,177), and Microsoft, up three places to number-4 (3,081 patents).

In terms of technology trends, IFI looks over a period of five years, where there is now a strong current of medical and biotechnology innovation running through the list right now, with hybrid plant creation topping the list of trending technology, followed by CRISPR gene-editing technology, and then medicinal preparations (led by cancer therapies). “Tech” in the computer processor sense only starts at number-four with dashboards and other car-related tech; with quantum computing, 3-D printing and flying vehicle tech all also featuring.

Indeed, if you have wondered if we are in a fallow period of innovation in mobile, internet and straight computer technology… look no further than this list to prove out that thought.

Unsurprisingly, US companies account for 49% of U.S. patents granted in 2019 up from 46 percent a year before. Japan accounts for 16% to be the second-largest, with South Korea at 7% (Samsung carrying a big part of that, I’m guessing), and China passing Germany to be at number-four with 5%.

  1. International Business Machines Corp 9262
  2. Samsung Electronics Co Ltd 6469
  3. Canon Inc 3548
  4. Microsoft Technology Licensing LLC 3081
  5. Intel Corp 3020
  6. LG Electronics Inc 2805
  7. Apple Inc 2490
  8. Ford Global Technologies LLC 2468
  9. Amazon Technologies Inc 2427
  10. Huawei Technologies Co Ltd 2418
  11. Qualcomm Inc 2348
  12. Taiwan Semiconductor Manufacturing Co TSMC Ltd 2331
  13. BOE Technology Group Co Ltd 2177
  14. Sony Corp 2142
  15. Google LLC 2102
  16. Toyota Motor Corp 2034
  17. Samsung Display Co Ltd 1946
  18. General Electric Co 1818
  19. Telefonaktiebolaget LM Ericsson AB 1607
  20. Hyundai Motor Co 1504
  21. Panasonic Intellectual Property Management Co Ltd 1387
  22. Boeing Co 1383
  23. Seiko Epson Corp 1345
  24. GM Global Technology Operations LLC 1285
  25. Micron Technology Inc 1268
  26. United Technologies Corp 1252
  27. Mitsubishi Electric Corp 1244
  28. Toshiba Corp 1170
  29. AT&T Intellectual Property I LP 1158
  30. Robert Bosch GmbH 1107
  31. Honda Motor Co Ltd 1080
  32. Denso Corp 1052
  33. Cisco Technology Inc 1050
  34. Halliburton Energy Services Inc 1020
  35. Fujitsu Ltd 1008
  36. Facebook Inc 989
  37. Ricoh Co Ltd 980
  38. Koninklijke Philips NV 973
  39. EMC IP Holding Co LLC 926
  40. NEC Corp 923
  41. Kia Motors Corp 921
  42. Texas Instruments Inc 894
  43. LG Display Co Ltd 865
  44. Oracle International Corp 847
  45. Murata Manufacturing Co Ltd 842
  46. Sharp Corp 819
  47. SK Hynix Inc 798
  48. Hewlett Packard Enterprise Development LP 794
  49. Fujifilm Corp 791
  50. LG Chem Ltd 791

ToursByLocals snaps up its first funding, $33M, to link sightseers with guides globally

The tours and experiences market is projected to be worth $183 billion this year, and today a startup that has made inroads into the space through bootstrapping is announcing its first outside investment. ToursByLocals — which sources local guides in some 162 countries, and then helps tourists search and book them for either individual or group tours and experiences in the place they are visiting — is today announcing $33 million in funding, from a single investor, Tritium Partners, money that it plans to use to hire more talent, build out its technology and to expand its business development team.

This is the first outside funding for the Vancouver, Canada-based startup, which for the past 10 years has bootstrapped its business, building it up to 1.45 million customers and some US$45 million in revenues.

The valuation of ToursByLocals — co-founded by Paul Melhus, Dave Vincent and Luciano Bullorsky — is not being disclosed but for some context, it’s operating in a dynamic (and crowded) space that includes competitors like Airbnb (by way of its Experiences effort); Berlin’s GetYourGuide, which last year raised funding from Softbank and is now valued at over $1 billion; Hong Kong’s Klook, also backed by Softbank and also valued at over $1 billion; Withlocals from the Netherlands; and more. But it’s not all up up up: Vayable, an experiences startup incubated in Y Combinator, quietly shut down in December.

The company today says it has some 4,130 professional guides and 30,000 different tours discoverable on its platform, ranging from group tours to private excursions. Its unique selling point up to now has been the fact that it curates these guides and has focused on people who you might not typically associate with touristic outings, including “archaeologists, art historians, wildlife experts, photographers and foodies.” The idea here is that “local” doesn’t just mean someone who lives in the area, but someone very close to a particular subject.

“A private tour with a local guide is the best way to experience a destination. Since our founding, we’ve focused on creating truly memorable private tour experiences for travelers, while helping local tour guides offer customizable tours in over 1,000 destinations globally,” said Melhus, the CEO of ToursByLocals, in a statement.

“We are excited to partner with Tritium. In addition to growth capital, we value the strategic advice offered by both the Tritium team and its network of experienced marketplace executives, as we continue to scale up our operations as a leading online travel marketplace.”

Indeed, for a first outing into the private venture markets, Tritium Partners is a notable backer — a private equity firm that has built a focus in the travel market, backing the likes of HomeAway and a peer-to-peer RV rental marketplace, RVShare.

“ToursByLocals stood out as the premier private tour marketplace with the highest quality tours and local guides in the industry,” said Brett Shobe, a partner at Tritium, in a statement. “We’re thrilled to partner with the ToursByLocals team and look forward to leveraging our capital and resources to support and accelerate their exciting growth trajectory.”

Today, the startup appears to be picking up the majority of its business through direct sales, which helps the startup control the full experience. Part of its hand-picking of guides includes running background checks on them, and it also handles payments and any customer support directly. This seems to have a positive impact on both sides of its marketplace, both by getting repeat business from travellers but also positive responses from guides.

What will be interesting is to see whether, in a bid for more scale, ToursByLocals expands the third-party aspect of its business, feeling tours into aggregation platforms like Booking.com or Airbnb, which are keen to expand their revenues per user with extras like tours and experiences, on top of airline and other transportation sales, accommodation bookings and other travel services they may already offer.