With the recent emphasis on Uber and WeWork, much media attention has been focused on high-burn, “software-enabled” startups. However, most of the IPOs of the last few years in tech have been in higher capital efficiency software-as-a-service startups (SaaS).
In the last 30 months (2017 2H onwards), a total of 21 U.S.-based, VC-backed SaaS companies have gone public, including Zoom, Slack, Datadog and others1. I analyzed all 21 companies to understand their fundraising and revenue-generating trajectories. A deep dive into the individual companies’ trajectories can be found in this Extra Crunch article.
Here are the summary takeaways from this data set:
Here is a scatterplot of the ARR and cumulative capital raised at the time each company went public. Most companies are clustered close to the diagonal line that represents ARR and capital raised matching each other. Total capital raised is often neck-and-neck or slightly higher than ARR.
It is useful to introduce a metric instead of looking at gross dollars, given the high variance in revenue of the companies in the data set — Sprout Social had $106 million and Dropbox had $1,222 million in ARR, a 10x+ difference. Total capital raised as a multiple of ARR normalizes this variance. Below is a histogram of the distribution of this metric.
The distribution is concentrated around 1.00x-1.25x, with the median company raising 1.23x of ARR by the time of its IPO.
There are outliers on both ends. Domo is a profligate outlier that had raised $690 million to get to $128 million of ARR, or 5.4x of ARR — no other company comes remotely close. Zoom and Datadog are efficient outliers. Zoom raised $161 million to get to $423 million of ARR and Datadog raised $148 million to get to $333 million of ARR, both representing only 0.4x of ARR.
How much capital a company raised tells only half of the story of capital efficiency, because many companies are sitting on a significant cash balance. For example, PagerDuty raised a total of $174 million but had $128 million of cash left when it went public. As another example, Slack raised a total of $1,390 million prior to going public but had $841 million of unspent cash.
Why do some SaaS companies end up seemingly over-raising capital beyond their immediate cash needs despite the dilution to existing shareholders?
One reason might be that companies are being opportunistic, raising capital far ahead of actual needs when market conditions are favorable.
Another reason may be that VCs that want to meet ownership targets are pushing for larger rounds. For example, a company valued at $400 million pre-money may only need $50 million of cash but could end up taking $100 million from a VC that wants to achieve 20% post-money ownership.
These confounding factors make cash burn — calculated by subtracting the cash balance from total capital raised4 — a more accurate measure of capital efficiency than total capital raised. Here is a distribution of total cash burn as a multiple of ARR.
Remarkably, Zoom achieved negative cash burn, meaning Zoom went public with more cash on its balance sheet than all of the capital it raised.
The median company’s cash burn at IPO was 0.77x of ARR, quite a bit less than the total capital raised of 1.23x of ARR.
The Rule of 40 is a popular heuristic to gauge the business health of a SaaS company. It asserts that a healthy SaaS company’s revenue growth rate and profit margins should sum to 40%+. The below chart shows how the 21 companies score on the Rule of 405.
Among the 21 companies, eight companies exceed the 40% threshold: Zoom (123%), Crowdstrike (119%), Datadog (76%), Bill.com (56%), Elastic (55%), Slack (52%), Qualtrics (44%) and SendGrid (41%).
Interestingly, the same outliers in terms of capital efficiency as measured by cash burn, on both extremes, are the same outliers in the Rule of 40. Zoom and Datadog, which have the highest capital efficiency, score the highest and third highest on the Rule of 40. And inversely, Domo and MongoDB, which have the lowest capital efficiency, also score lowest on the Rule of 40.
This is not surprising, because the Rule and capital efficiency are really two sides of the same coin. If a company can sustain high growth without sacrificing profit margins too much (i.e. score high on the Rule of 40), it will over time naturally end up burning less cash compared to peers.
To apply all of this to your favorite SaaS business, here are some questions to consider. What is the total capital raised in multiples of ARR? What is the total cash burn in multiples of ARR? Where does it stack compared to the 21 companies above? Is it closer to Zoom or Domo? How does it score on the Rule of 40? Does it help explain the company’s capital efficiency or lack thereof?
Thanks to Elad Gil and Denton Xu for reviewing drafts of this article.
1Only includes U.S.-based, VC-backed SaaS companies. Includes Quatrics, even though it did not go public, as it was acquired right before its scheduled IPO.
2Includes institutional investments prior to the IPO. Does not include founders’ personal capital investment.
3Note that this is not annual recurring revenue, which is not a reporting requirement for public companies. Annual run-rate revenue is calculated by annualizing quarterly revenue (multiplying by four). The two metrics will track closely for SaaS businesses, given that SaaS revenue is predominantly recurring software subscriptions.
4This is a simplified definition as it will capture non-operational uses of cash such as share repurchase from founders.
5Revenue growth is calculated as the growth rate of the revenue during the last 12 months (LTM) over the revenue during the 12 months prior to that. Profit margins are non-GAAP operating margins, calculated as operating income plus stock-based compensation expense divided by revenue over the last 12 months (LTM).
Government and policy experts are among the most important people in the future of transportation. Any company pursuing the shared scooters and bikes business, ride-hailing, on-demand shuttles and eventually autonomous vehicles has to have someone, or a team of people, who can work with cities.
Enter Shin-pein Tsay, the director of policy, cities and transportation at Uber . TechCrunch is excited to announced that Tsay will join us on stage at TC Sessions: Mobility, a one-day conference dedicated to the future of mobility and transportation.
If there’s one person who is at the center of this universe, it’s Tsay. In her current role at Uber, she leads a team of issues experts focused on what Uber calls a “sustainable multi-modal urban future.”
Tsay is also founder. Prior to Uber, she founded a social impact analysis company called Make Public. She was also the deputy executive director of TransitCenter, a national foundation focused on improving urban transportation. She also founded and directed the cities and transportation program under the Energy and Climate Program at the Carnegie Endowment for International Peace.
For the past four years, Shin–pei has served as a commissioner for the City of New York Public Design Commission. She is on the board of the national non-profit In Our Backyard.
Stay tuned, we’ll have more speaker announcements in the coming weeks. In case you missed it, TechCrunch has already announced Ike co-founder and chief engineer Nancy Sun, Waymo’s head of trucking Boris Sofman and Trucks VC’s Reilly Brennan will be participating in TC Sessions: Mobility.
Don’t forget that $250 Early-Bird tickets are now on sale — save $100 on tickets before prices go up on April 9; book today.
Students, you can grab your tickets for just $50 here.
Mike Rothenberg, the once high-flying VC bent on bringing the party to Silicon Valley, must now pay a whopping $31.4 million to settle a California federal court ruling in favor of Security and Exchange Commission allegations.
TechCrunch deemed Rothenberg a “virtual Gatsby” back in 2016, when we first broke the news about the downfall of his venture capital firm, Rothenberg Ventures. It seemed he took it as a compliment, changing his Instagram handle to @virtualgatsby. Indeed, the name seemed appropriate for a man who seemingly lived a party-boy lifestyle and spent lavishly to woo startup founders — including going on Napa Valley wine tours, holding an annual “founder field day” where he rented the whole San Francisco Giants’ baseball stadium and spending unsparingly to executive produce a video for Coldplay.
But the party life came to a halt when top leadership jumped ship and the SEC started looking into the books. The SEC formally charged Rothenberg in August of 2018 for misappropriating millions of dollars of his investors’ capital and funneling that money into his own bank account. Rothenberg settled with the SEC at the time and, as part of the settlement, was barred from the brokerage and investment advisory business for five years.
Rothenberg was later caught up in several lawsuits, including one from Transcend VR for fraud and breach of contract, which ended in a settlement. Another suit between Rothenberg and his former CFO, David Haase, ended with Rothenberg being ordered to pay $166,000 in damages.
But there was more to come from the SEC, following a forensic audit in partnership with the firm Deloitte showing the misuse or misappropriation of $18.8 million in investor funding. Under that examination, Deloitte showed Rothenberg had used the money either personally, to float his flashy lifestyle, or for other extravagances, such as building a race car team and a virtual reality studio. Rothenberg has now been ordered to pay back the $18.8 million he took from investors, another $9 million in civil penalties, plus $3.7 million in interest.
Neither the SEC nor Rothenberg have responded for comment. It’s also important to note none of the charges so far have been criminal, but were handled in civil court, as the SEC does not handle criminal cases.
Through all of it, Rothenberg never admitted any guilt for his actions and it is important to note that, because of this he will be able to practice again after the bar is lifted in five years. He’s also made some decent early investments in startups like Robinhood, and many investor sources TechCrunch spoke to over the years seemed quite loyal to him as an investor, despite the charges, employee mass exodus and fund implosion that followed.
And it seems this saga is not over yet. Rothenberg told MarketWatch in a recent interview that he thought the ruling was, “historically excessive and vindictively punitive,” that he planned to appeal it and would be suing Silicon Valley Bank, which Rothenberg used to funnel several investments, over the matter.
Rothenberg Ventures already filed suit against Silicon Valley Bank in August of 2018, the same day the SEC filed formal charges against Rothenberg himself. In that suit, Rothenberg alleged negligence, fraud and deceit on the part of the bank and sought a trial before jury. Silicon Valley Bank said it would defend against the case at the time.
We’ve reached out to Silicon Valley Bank and are waiting to hear back. The real question is, if Rothenberg were to come back to investing in Silicon Valley, would anyone still trust him?
Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.
It’s the second to last day of 2019, meaning we’re very nearly out of time this year; our space for repretrospection is quickly coming to a close. Before we do run out of hours, however, I wanted to peek at some data that former Kleiner Perkins investor and Packagd founder Eric Feng recently compiled.
Feng dug into the changing ratio between enterprise-focused Seed deals and consumer-oriented Seed investments over the past decade or so, including 2019. The consumer-enterprise split, a loose divide that cleaves the startup world into two somewhat-neat buckets, has flipped. Feng’s data details a change in the majority, with startups selling to other companies raising more Seed deals than upstarts trying to build a customer base amongst folks like ourselves in 2019.
The change matters. As we continue to explore new unicorn creation (quick) and the pace of unicorn exits (comparatively slow), it’s also worth keeping an eye on the other end of the startup lifecycle. After all, what happens with Seed deals today will turn into changes to the unicorn market in years to come.
Let’s peek at a key chart from Feng, talk about Seed deal volume more generally, and close by positing a few reasons (only one of which is Snap’s IPO) as to why the market has changed as much as it has for the earliest stage of startup investing.
Feng’s piece, which you can read here, tracks the investment patterns of startup accelerator Y Combinator against its market. We care more about total deal volume, but I can’t recommend the dataset enough if you have the time.
Concerning the universe of Seed deals, here’s Feng’s key chart:
Chart via Eric Feng / Medium
As you can see, the chart shows that in the pre-2008 era, Seed deals were amply skewed towards consumer-focused Seed investments. A new normal was found after the 2008 crisis, with just a smidge under 75% of Seed deals focused on selling to the masses for nearly a decade.
In 2016, however, a new trend emerged: a gradual decline in consumer Seed deals and a shift towards enterprise investments.
This became more pronounced in 2017, sharper in 2018, and by 2019 fewer than half of Seed deals focused on consumers. Now, more than half are targeting other companies as their future customer base. (Y Combinator, as Feng notes, got there first, making a majority of investments into enterprise startups since 2010, with just a few outlying classes.)
This flip comes as Seed deals sit at the 5,000-per-quarter mark. As Crunchbase News published as Q3 2019 ended, global Seed volume is strong:
So, we’re seeing a healthy number of deals as the consumer-enterprise ratio changes. This means that the change to more enterprise deals as a portion of all Seed investments isn’t predicated on their number holding steady while Seed deals dried up. Instead, enterprise deals are taking a rising share while volume appears healthy.
Now we get to the fun stuff; why is this happening?
As with many trends long in the making, there is no single reason why Seed investors have changed up their investing patterns. Instead, there are likely a myriad that added up to the eventual change. I’m going to ping a number of Seed investors this week to get some more input for us to chew on, but there are some obvious candidates that we can discuss today.
In no particular order, here are a few:
Tesla CEO Elon Musk definitely didn’t have the most issue-free presentation during last night’s Cybertruck unveil, but he did pull off a pretty impressive ‘one more thing moment’ – revealing a surprise all-electric all-terrain vehicle (ATV) that Tesla created to pair with its futuristic pickup.
The Tesla electric ATV didn’t get a lot of time to shine on its own, and instead was used primarily to demonstrate how the Tesla Cybertruck bed and active suspension works for loading up cargo, but it’s a real enough thing that Tesla made sure to point out that you can charge the electric four-wheeler right from the Cybertruck while the ATV is loaded in the bed.
Musk didn’t reveal anything about pricing or availability regarding the ATV, but a demo drive did actually drive it up on stage and load it into the bed, so it’s real enough to be functional. Like the Cybertruck itself, it also featured a body design with a lot of intersecting flat planes and angels, and it was done up in matte black, which makes it look like the ATV version of a stealth bomber.
In the past, Musk has discussed the idea of electric motorcycles, dismissing Tesla’s interest in the category in favor of electric bikes. Musk said that a motorcycle was not in the cards at a Tesla shareholder meeting in 2018, and also floated the idea of doing an e-bike instead that same year.
An ATV is a very different kind of vehicle – designed more for utility and recreation than for road use, but it’ll be interesting to see what kind of consumer launch Tesla has in mind for such a vehicle. A ‘Cybertruck: ATV Edition’ would probably incur a lot of demand.
Sonos revealed during its quarterly earnings report that it has acquired voice assistant startup Snips in a $37 million cash deal, Variety reported on Wednesday. Snips, which had been developing dedicated smart device assistants that can operate primarily locally, instead of relying on consistently round-tripping voice data to the cloud, could help Sonos set up a voice control option for its customers that has “privacy in mind” and is focused more narrowly on music control than on being a general-purpose smart assistant.
Sonos has worked with both Amazon and Google and their voice assistants, providing support for either on their more recent products, including the Sonos Beam and Sonos One smart speakers. Both of these require an active cloud connection to work, however, and have received scrutiny from consumers and consumer protection groups recently for how they handle the data they collect form users. They’ve introduced additional controls to help users navigate their own data sharing, but Sonos CEO Patrick Spence noted that one of the things the company can do in building its own voice features is developing them “with privacy in mind” in an interview with Variety.
Notably, Sonos has introduced a version of its Sonos One that leave out the microphone hardware altogether – the Sonos One SL introduced earlier this fall. The fact that they saw opportunity in a mic-less second version of the Sonos One suggests it’s likely there are a decent number of customers who like the option of a product that’s not round-tripping any information with a remote server. Spence also seemed quick to point out that Sonos wouldn’t seek to compete with its voice assistant partners, however, since anything they build will be focused much more specifically on music.
You can imagine how local machine learning would be able to handle commands like skipping, pausing playback and adjusting volume (and maybe even more advanced feature like playing back a saved playlist), without having to connect to any kind of cloud service. It seems like what Spence envisions is something like that which can provide basic controls, while still allowing the option for a customer to enable one of the more full-featured voice assistants depending on their preference.
Meanwhile, partnerships continue to prove lucrative for Sonos: Its team-up with Ikea resulted in 30,000 speakers sold on launch day, the company also shared alongside its earnings. That’s a lot to move in one day, especially in this category.
Starburst, the company that’s looking to monetize the open-source Presto distributed query engine, today announced that it has raised a $22 million funding round led by Index Ventures, with the firm’s partner Mike Volpi joining the board. The general idea behind Presto is to allow anybody to use the standard SQL query language to run interactive queries against a vast amount of data that can sit in a variety of sources.
Like so many other open-source companies, Starburst plans to monetize Presto, which was originally developed at Facebook and open-sourced in 2013, by adding a number of enterprise-centric features on top, with the obvious focus being security features like role-based access control, as well as connectors to enterprise systems like Teradata, Snowflake and DB2, and a management console where users can configure the cluster to auto-scale, for example.
The Starburst co-founders, Justin Borgman and Matt Fuller previously sold their “SQL-on-Hadoop” company Hadapt to Teradata. After their tenure at Teradata, they decided to focus on turning Presto into an enterprise-grade service and after a few years, they succeeded in hiring Preso founders Brian Sundstrom, Martin Traverso and Dave Philips, as well.
“What makes Presto so interesting is that it allows you to do data warehouse analytics without the data warehouse,” Starburst CEO Borgman told me. “What I mean by that is that you can query data anywhere. You don’t have to load the data, you don’t have to transform the data, and you don’t have to prepare the data.”
With this, an analyst can then access data anywhere, using regular SQL queries, without having to worry about the underlying infrastructure that makes it all work.
Starburst’s overall mission to unify all of these data sources may sound a bit familiar, and I’ve heard somewhat similar pitches from other companies as well, including the likes of Databricks. Borgman, however, argues, that Starburst’s target audience is quite different from that of other projects, which tend to sit on top of the Spark engine. “We see Spark as very complementary to Presto,” he said. “What I mean by that is, we really think that Spark is best for the data scientist who is training machine learning models and working with Python notebooks, and writing code in Scala. Sort of the AI use cases. We’re focused exclusively on SQL — and SQL is a language that caters to a much broader audience. Maybe it’s not the data scientist PhD, but it’s the business analyst, the guy who went to business school and is trying to create some charts to show what’s going on with sales.”
The company says it will use the new funding to build out its salesforce and marketing team, which it doesn’t really have right now, and expand its engineering team. Like similar open-source companies, chances are Starburst will, sooner or later, offer Presto as a managed service, too, though Borgman wasn’t quite ready to talk about this yet.
“Index has a long history of backing open source companies and data infrastructure companies. Some of these have now become household name: MySQL, Elastic, Confluent, Datadog and Kong to name a few,” Index Venture’s Volpi writes in a bog post today. That already made Starburst a good fit for a potential investment, though he also notes that bringing the Presto founders on board helped seal the deal and something he helped engineer.
“Our great fortune was that Justin and Matt are immensely wise and able to put aside ego’s and short term personal gain,” writes Volpi. “We were excited when they came to terms with Dain, Martin, and Dave. The end result was a reborn Starburst — a company constituted of the entrepreneurs that seized the commercial opportunity of Presto and the genius founders who invented it in the first place.”
Data from the U.S. government sure seems to indicate that the Earth is warming (despite what the current leadership may say).
Apparently, the globe just experienced the second-hottest October ever recorded and is on track for the second-hottest year to date on record, according to data from the National Oceanic and Atmospheric Administration.
Not only are we experiencing a run of hot Octobers (this is the tenth year that temperatures have hit recorded-history highs since 2003 and all five of the highest temperature years were in the past five years), but arctic ice has also shrunk to its lowest extent since satellite records began in 1979.
Even as the Trump Administration enacts policies to reverse course on curbing the emissions that seem to be leading to a changing global climate, federal agencies like the NOAA keep releasing reports that reveal exactly how much the planet is changing.
Earlier this month Secretary of State Mike Pompeo began the process of formally withdrawing the U.S. from the Paris Agreement on climate change. As with most momentous events of the Administration, the world was notified via Twitter.
Today we begin the formal process of withdrawing from the Paris Agreement. The U.S. is proud of our record as a world leader in reducing all emissions, fostering resilience, growing our economy, and ensuring energy for our citizens. Ours is a realistic and pragmatic model.
— Secretary Pompeo (@SecPompeo) November 4, 2019
While Secretary Pompeo was praising the nation’s approach to “reducing all emissions”, Europe, Africa, Oceania, the Caribbean and Hawaiian Islands hit historic record-setting temperatures and the world’s average sea surface temperature hit its second-warmest ever-recorded temperature.
Meanwhile, new projections are revising the risk that cities face from rising sea levels that are caused by melting glaciers due to warmer temperatures.
Maps created by the research organization Climate Central, and published in the journal Nature Communications indicate that rising seas could flood land that’s currently home to some 150 million people at high-tide by 2050, if steps aren’t taken to improve the resiliency of cities to flooding or reverse course on climate.
Even the Federal Reserve is waking up to climate change risks. The regulator responsible for U.S. monetary policy convened an event earlier this month to focus on the financial impacts of climate change.
“By participating more actively in climate-related research and practice, the Federal Reserve can be more effective in supporting a strong economy and a stable financial system,” Lael Brainard, a member of the Fed’s board in Washington, said in prepared remarks at the same event, according to a report in The New York Times.
Bolt Bikes, the Sydney, Australia-based startup founded in 2017, is taking its electric bike platform designed for gig economy delivery workers to the U.S. and UK.
The company is expanding on the heels of a $2.5 million seed round led by Maniv Mobility, European e-mobility firm Contrarian Ventures, individual investors and former executives of Uber and Deliveroo . The company was founded by Mina Nada, former Deliveroo and Mobike executive) and Michael Johnson, a former Bain & Co executive.
Bolt Bikes now provides its flexible subscriptions, which include vehicle servicing, in Sydney and Melbourne, Australia, San Francisco and London. The company sells its electric bikes. But the main premise is to rent them out for commercial use. The electric bikes are rented on a week-to-week contract for $39.
The Bolt Bikes platform includes a the electric bike, fleet management software, financing and servicing. Subscribers get 24-hour access to the bike. A battery charger, phone holder, phone USB port, secure U-Lock and safety induction is included. Bolt Bikes also offers the first week as a free trial.
“Being in the food delivery industry since its inception, we saw that light electric vehicles were the real future of ‘last mile’ logistics, yet no-one was offering the right vehicle, financing or maintenance solution,” Nada said in a statement.
Bolt Bikes has piqued the interest of more than investors. Postmates has been piloting a Bolt Bikes rental program in San Francisco since June.
And the company has aspirations to increase its fleet and to expand to more cities in the U.S., UK and Australia.
There’s literally a lot more stuff in space than there was last week – or at least, the number of active human-made satellites in Earth’s orbit has gone up quite a bit, thanks to the launch of SpaceX’s first 60 production Starlink satellites. This week also saw movement in other key areas of commercial space, and some continued activity in early-stage space startup ecosystem encouragement.
Some of the ‘New Space’ companies are flexing the advantages that are helping them shake up an industry typically reserved for just a few deep-pocketed defence contractors, and NASA is getting ready for planetary space exploration in more ways than one.
The 60 Starlink satellites that SpaceX launched this week are the first that aren’t specifically designated as tester vehicles, even though it launched a batch of 60 earlier this year, too. These ones will form the cornerstone of between 300-400 or so that will provide the first commercial service to customers in the U.S. and Canada next year, if everything goes to SpaceX’s plan for its new global broadband service.
Aside from being the building blocks for the company’s first direct-to-consumer product, this launch was also an opportunity for SpaceX to show just how far its come with reusability. It flew the company’s first recovered rocket fairing, for instance, and also used a Falcon 9 booster for the fourth time – and landed it, so that it can potentially use it on yet another mission in the future.
Rocket Lab is aiming to providing increasingly high-frequency launch capabilities, and the company has a new robot to help it achieve very quick turnaround on rocket production: Rosie. Rosie the Robot can produce a launch vehicle about once every 12 hours – handling the key task of processing the company’s Electron carbon composite stages in a way that cuts what used to take hundreds of manual work hours into something that can be done twice a day.
This is big because the last time SpaceX fired up the Crew Dragon’s crucial SuperDraco thrust system, it exploded and took the capsule with it. Now, the crew spacecraft can move on to the next step of demonstrating an in-flight abort (the emergency ‘cancel’ procedure that will let astronauts on board get out with their lives in the case of a post-launch, mid-flight emergency) and then it’s on to crewed tests.
It’s not like they’ll have to get out and fix something in zero gravity or anything, but the rich few who have paid Virgin Galactic $250,000 per seat for a trip to space will still need to train before they go up. They’ve now begun doing just that, as Virgin looks to the first half of next year for its first commercial space tourism flights.
They have a couple now, and this new one is done in partnership with the U.S. Air Force, along with allied government agencies in The Netherlands and Norway. This one doesn’t require that participants relocated to a central hub for the duration of the program, which should mean more global appeal.
Blue Origin’s Jeff Bezos announced a multi-partner team that will work on the company’s lunar lander, and its orbital delivery mechanism. A key ingredient there is longtime space industry experts Draper, which was born out of MIT and which is perhaps most famous for having developed the Apollo 11 guidance system. Draper will be developing the avionics and guidance systems for Blue Origin’s lunar lander, too, and Mike Butcher caught up with Draper CEO Ken Gabriel to discuss. (Extra Crunch subscription required)
Instagram is making Like counts private for some users everywhere. Instagram tells TechCrunch the hidden Likes test is expanding to a subset of users globally. Users will have to decide for themselves if something is worth Liking rather than judging by the herd. The change could make users more comfortable sharing what’s important to them without the fear of people seeing them receive an embarrassingly small number of likes.
Instagram began hiding Likes in April in Canada and then brought the test to Ireland, Italy, Japan, Brazil, Australia and New Zealand in July. Facebook started a similar experiment in Australia in September. Instagram said last week the test would expand to the US, but now it’s running everywhere to a small percentage of users in each country.
Instagram wants its app to be a place people feel comfortable expressing themselves, and can focus on photos and videos they share rather than how many Likes they get, a spokesperson tells TechCrunch. Users can still see who Liked their own posts by tapping on the Likers list, but they won’t see a count anywhere — they’d have to count the names manually. Viewers of posts will only see a few names of mutual friends who Liked it.
The expansion raises concerns that the test could hurt influencers and creators after a study by HypeAuditor found many of them of various levels of popularity lost 3% to 15% of their Likes in countries where Instagram hid the counts.
Instagram tells me it understands Like counts are important to many creators, and it’s actively working on ways that creators will be able to communicate their value to partners. Since Like counts won’t be public, influencer marketing agencies must rely on self-reported screenshots from creators that could be photoshopped to score undue rewards.
Without even privately visible counts, agencies won’t be able verify a post got enough engagement to warrant payment. Instagram may need to offer some sort of private URL or API creators can share with agencies that reveals Like counts.
Instagram CEO Adam Mosseri said last week that “We will make decisions that hurt the business if they help people’s well-being and health”. Hidden Like counts might reduce overall ad spend on Instagram if businesses feel its less important to rack up engagement and look popular. But it might also shift spend from influencer marketing that goes directly into the pockets of creators towards official Instagram ads, thereby earning the company more money.
An Instagram spokesperson provided this statement to TechCrunch: “Starting today, we’re expanding our test of private like counts to the rest of the world beyond Australia, Brazil, Canada, Ireland, Italy, and New Zealand. If you’re in the test, you’ll no longer see the total number of likes and views on photos and videos posted to Feed unless they’re your own. While the feedback from early testing has been positive, this is a fundamental change to Instagram, and so we’re continuing our test to learn more from our global community.”
This is perhaps the final step of testing before Instagram might officially launch the change and hide Like counts for all users everywhere. It’s surely watching closely to determine how the test improves mental health, but also how it impacts usage of the app.
Hiding Likes is probably a win for the sanity of humanity, and a boon to creativity. Before, people would often self-censored and declined to share posts they worried wouldn’t get enough Likes, or deleted posts that didn’t. They’d instinctually bend their public persona towards manicured selfies and images that made their life look glamorous, rather than what was real or what they wanted to communicate. Meanwhile, viewers would see high Like counts on friends’ or influencers’ posts, compare those to their own smaller Like counts, and feel ashamed or inadequate.
Putting an end to the popularity contest might lead people to share more unconventional, silly, or artsy posts regardless of their public reception.
As the holiday season approaches, I can feel the tension in the air: how do I make my gifts stand out?
Thankfully, there are so many fun direct to consumer (D2C) categories — from bath salts to plants, to even organic fertilizer.
A New York City-based VC firm once asked us, “there are so many products that are getting launched in the direct to consumer route. It’s good that you track them. But can you tell us which segment is likely to go direct to consumer?” In other words, they were asking us to be psychics.
We aren’t, but I never let that question go.
There are many reasons why a brand can go D2C. You could unbundle every category on Amazon and there could be a case made for going direct to consumer. Several brands that do just that, but Amazon is not the obvious place to look for all answers.
Let’s take the example of plants and fertilizer. I want to gift a plant this holiday season, but I have two problems: I don’t know which plant to pick for my friend because I don’t know his preferences, and even if I find the right plant, I don’t know whether he’ll be able to keep it alive.
Generally, when people consider purchasing a plant, it’s not because they woke up after having a startling dream about a fern or a ficus that won its heart — it’s more likely that they looked at an empty balcony while sipping their morning coffee and thought it needed a touch of green. People aren’t buying plants; they’re buying better visuals, and a potted palm tree is a vehicle to their preferred emotional state.
But what if he’s unable to take care of the plants? Should I just buy some really good candles instead? Rooted, an online plant store, sorts its offerings using criteria like the amount of light required and how frequently a plant needs to be watered. As a result, I found Tim, a snake plant that’s “virtually indestructible and adaptable to almost any conditions.”
Some products are complex. No two plants are the same, and no two plant buyers are identical, either. It’s complicated. You can walk into a nursery and get the plant you are drawn towards and read the instructions wrapped inside, but the onus is still on you to help it thrive.
Companies like Rooted and Bloomscape
By going direct to consumer, brands can personalize the buying experience, optimize customer enjoyment and use, educate them at the right cadence, and ultimately, help them successfully harvest the emotions they were seeking.
This approach works for any category that is perceived to be complex. Whether it’s coffee, wine, food supplements or plants, these products are complex experiences that need to be tailored to customers, and the education process could be overwhelming. Brands that get it right can achieve the right experience by going direct to consumer.
People are generally resistant to change, but they love brands that can help them find a better version of themselves. Fear of the unknown and making the wrong decision ends in post-purchase dissonance; bad brands introduces dissonance, while a good brand attenuates this fear. The good or the bad is determined by the onboarding experience, intuitive design, content, online support, customer reviews and after-sales experience.
Like batteries that store power, brands store emotional states, positive and negative; a consumer’s interaction with Comcast taps into a different range of emotions than a visit to an Apple Store.
Creating comfortable footwear, for example, requires complex engineering; with unique types for walking, cycling and running, how do you figure which one is right for you? Nike Fit, an app released this year, uses AI to help customers find the optimal fit for their foot.
“Three out of every five people are likely to wear the wrong size shoe,” the company said in a statement. “Length and width don’t provide nearly enough data to get a shoe to fit comfortably. Sizing as we know it is a gross simplification of a complex problem.” The AI even tells you if your right foot is larger than your left and recommends the best sneaker; emotions unlocked! It’s no wonder Nike’s doubling down on its D2C channels.
Ultimately, a brand that performs well is a brand that has recognized and solved a customer’s problem; ecommerce and D2C are mediums that to do precisely that. A good brand offers good experience design that brings simplicity to a complex product, magically making it seem familiar.
“We will make decisions that hurt the business if they help people’s well-being and health” says Instagram’s CEO Adam Mosseri. To that end, next week Instagram will expand its test of hiding Like counts from everyone but a post’s creator to some users in the United States. But there are major questions about whether the change will hurt influencers.
Mosseri revealed the plan at the Wired25 conference today, saying Instagram “We have to see how it affects how people feel about the platform, how it affects how they use the platform, how it affects the creator ecosystem.”
Instagram’s CEo explained that “The idea is to try to depressurize Instagram, make it less of a competition, and give people more space to focus on connect ing with the people they love and things that inspire them.” The intention is to “reduce anxiety” and “reduce social comparison”.
While it seems likely that making Instagram less of a popularity contest might aid the average user, Instagram has to be mindful that it doesn’t significantly decrease creators’ or influencers’ engagement and business success. These content makers are vital to Instagram’s success, since they keep their fan bases coming back day after day, even If users’ friends are growing stale.
A new study by HypeAuditor reported by Social Media Today found that influencers across tiers of follower counts almost unanimously saw their Like counts fall in countries where the hidden Like count test was active. Likes fell 3% to 15% in all the countries for influencers with 5,000 to 20,000 followers.
Only in Japan, and only for influencers with 1,000 to 5,000 or 100,000 to 1 million followers did the change lead to a 6% boost in Likes. Meanwhile, influencers saw the biggest loss of Likes in the Brazilian market. Those trends could relate to how users in certain countries might feel more comfortable Liking something if they don’t know who else is, while in other nations users might rely on more herd mentality to know what to Like.
If Instagram finds the impact of the test to be too negative on influencers, it may not roll out the change. While Mosseri stated the company wasn’t afraid to hurt it’s own bottom line, impairing the careers of influencers may not be acceptable unless the positive impacts on well-being are significant enough.
We’ve seen our fair share of shocking headlines recently: tenuous IPOs, the “retailpocalypse” and a fickle market have reset the way we size up subscription businesses. Recurring revenue models have their pitfalls, and 2019 has certainly taught the industry a few lessons.
Next year, retention is set to be a top priority for companies looking to keep customers engaged and drive growth. From niche products to personalization, how companies deliver on and measure the success of their customer experience will separate successful subscription businesses from the next unflattering news story.
These seven trends will emerge to shape the way companies delight and retain customers in 2020.
We’ve all seen articles detailing the financial fall of many brick-and-mortar stores. The retail crunch predicted years ago is coming to fruition as we’ve watched household names like Sears, Toys R Us and Barney’s consider bankruptcy or go up for sale.
Consumers aren’t letting up in their preference for convenience; they want easier ways to buy, and that means stores must develop better online experiences and offer subscription options or risk losing revenue. We’ll see big brands like Nike and Ikea continue to experiment and expand innovative subscription offerings.
For struggling brick-and-mortar businesses, subscription services could very well be a lifeline to retain a dwindling customer base. The shifting retail industry presents an opportunity for traditional companies to fully embrace recurring revenue models next year — smart organizations will do so.
We’ve experienced a rapid period of subscription adoption, with more options launching everyday. And that’s led us to a point of max fragmentation where companies and consumers alike are subscribed to so many niche products and services, they can no longer manage or afford new offerings.
Because the proliferation of subscriptions are so vast, specialized products and services will need to do prove their worth or risk being replaced. B2B (project management, martech, ecommerce) and B2C (clothing, streaming, meal delivery) companies alike must offer far better experiences in 2020 than in years past. For B2B organizations, products must be integrated with larger systems to justify their existence. One-off point solutions that silo information and create broken customer experiences will no longer be accepted. And for B2C companies, pricing will have to be spot on as more competition vies for the budgets of consumers who haven’t budgeted for increased spending.
Ultimately, not every company will be able to compete in the age of subscription fatigue, so we’ll see more consolidation, partnerships and mergers occur in the coming year.
It’s impossible to ignore the IPO press around WeWork, Blue Apron, Uber, Peloton and others. If 2020’s tech and consumer unicorns have poor unit economics and aren’t turning a profit, they need to prepare to be the next ugly headline. Marketers can be a force for change by focusing on the long-term retention of the customers they acquire. And I believe they’ll do so happily. Why?
Cities have always been America’s centers of power, driving the economy forward through competition. But now, they’re ceasing to lead the country’s innovation.
As jobs and talent have clustered, expertise has spilled over urban boundaries. In locations like the Gulf Coast, Texas Triangle, Great Lakes and Southern California, metropolitan areas are cooperating across borders to share new ideas. Eleven of these have earned the title of “megaregion,” and they host some of the continent’s cutting-edge centers of technology.
The Cascadia Innovation Corridor — the strip of land down the West Coast from Vancouver, Canada to Portland, Oregon — is perhaps the best example. Home to powerhouses like Microsoft, Amazon, Nike, Lululemon, Boeing and Intel, the area has seen large investments from companies hoping to encourage further cooperation. Over the past five years, state and provincial governments have signed formal agreements for collaboration, and executive-filled conferences are being held to encourage new partnerships.
Why are businesses and government organizations investing so much into the region? Challenge Seattle CEO and former Washington State Governor Christine Gregoire believes it’s the evolution of a trend that’s been unfolding for decades.
“For many years, a number of international companies from Seattle have been putting Canadian headquarters in Vancouver,” she says. “So without anybody deliberately thinking about how we could work together, it was already actually happening. These organizations have decided to capitalize on [what] was happening from the ground up, and build out a vision, and bring us all together so we can really magnify the success of what’s already happening on the ground.”
The West Coast’s urban centers are linked by more than shared geography and, as Gregoire jokes, a love of the Seattle Seahawks — the Pacific Northwest is characterized by an open and inclusive culture, heterogeneous populations and creating technology with a focus on social good. Economically, too, there are similarities. West Coast cities have historically turned to Asian and South Asian markets for trade, as well as looking to each other. Washington State exports more to British Columbia than it does to all other Canadian provinces combined, and if Washington State were a country, it would represent B.C.’s third-largest international export market.
For Bill Tam, a member of the Cascadia Innovation Corridor steering committee and former president of BC Tech, Vancouver, Seattle, and Portland have different reasons to support the megaregion.
“In Vancouver, which has a great startup ecosystem, a lot of those companies and a lot of the research organizations have really bought into this idea of being part of something bigger and more substantive,” he says. “I think on the U.S. side, what was interesting was that we saw the impetus come from larger companies — particularly Microsoft, but they’re not the only ones. Everyone from the Nordstroms to the REIs really see the value in learning and working together to try and build leverage, and to accelerate the things they want to do.”
Tam’s hope for the region’s success comes from its ability to share resources across cities. Vancouver, for instance, is known for its highly-educated workforce: the location’s nature-filled setting and welcoming immigration policies attracts many qualified tech employees. With its industry focused on startups, though, it lacks larger brands and anchor companies that would help propel it onto the global stage.
The Seattle area, however, has the opposite problem. America’s tight immigration regulations make it hard for companies to secure qualified talent, but the influence of tech giants like Microsoft and Amazon mean the city is a hotbed for international investment and innovation. By joining forces — and by integrating Portland, which sits somewhere between both poles — the Cascadia region, Tam believes, can emerge as a powerful global competitor.
“I think the long-term vision for Cascadia is to feel like it is an economic region that is not only the best place to build new innovations, but also a cohesive area that understands the values of collaboration,” he says. “It ties together all the responsible aspects of how we live — whether it’s on the sustainability agenda, the environment agenda, and how we actually treat each other as an open and diverse society.”
Photo: Lee Robinson/Unsplash
Aside from giants Amazon and Microsoft’s dominance in ecommerce, software, and cloud-based computing, the area has spawned niche areas of expertise. President and CEO of the Business Council of British Columbia Greg D’Avignon believes those sectors will help elevate Cascadia’s profile.
“There’s a myriad of interesting companies here in British Columbia that are driving innovation,” he says. “In the quantum space, there’s D-Wave Systems, 1QBit, and others. D-Wave is the first commercial quantum computing company in the world, and it’s driving significant and complex computations on datasets to try to resolve issues that are endemic to challenges we have in terms of climate, personal health, aging, and growing populations. Life sciences is another important sector. There are some very interesting companies in the personalized medicine and health business — we’ve got Zymeworks […] and a myriad of other companies [that] are changing the nature of population-based healthcare.”
The region is also well-regarded in the virtual and augmented reality (VR/AR) space. Microsoft developed one of the leading AR headsets — the HoloLens — in the Pacific Northwest, and Vancouver has since been recognized as the world’s second-largest VR and AR ecosystem. More than 230 companies are located in the city, drawing on its history of gaming and visual effects to develop everything from surgical-training software to AAA-aspiring titles.
As well as individual successes in the consumer blockchain space with viral game Cryptokitties and data aggregation with Hootsuite, Cascadia is known for technical apparel, with the likes of Lululemon, REI, Eddie Bauer, Arc’teryx, and Nike choosing the region as their home. With Amazon’s monopoly on online retail, the West Coast leads North America in merchandizing tech.
“When we talk about some of the foundational pillars in the corridor, we’re talking about the movement of people and goods across the border,” D’Avignon says. “We’re talking about bringing together postsecondary in a way that is important. That’s all rooted deeply in how we look at making this region better. And then as we learn, how do we share that learning and those commercial opportunities with the rest of the world?”