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Memo to this year’s YC class: It’s damn hard to build an enterprise company
Among VCs and entrepreneurs like myself, there’s a lot of talk about the recent pivot from consumer startups to enterprise software. It seems that many young founders have now decided they’d rather start the next Box, not the next Facebook.
The shift to enterprise is a bit of the “tail wagging the dog.” The poor short-term performance of a few consumer IPOs like Groupon and Facebook coincided with the strong performance of software as a service IPOs such as LinkedIn, Workday and Splunk. Since IPOs have traditionally been the main method for VCs to find liquidity, these investors have shifted their focus. When this happens, entrepreneurs, ever pragmatic, adopt new passions.
That’s not to say there aren’t great things about the enterprise. Three of my favorite attributes of enterprise SaaS businesses are: 1) There is less business model risk; 2) It’s easier to identify pain-points to address relative to ephemeral tools for fighting boredom, and 3) Buyers are usually more rational than consumers – the better product tends to win.
Gartner forecasts that the SaaS market will grow 19.5% through 2016, from $13.5 billion in 2011 to $32.8 billion in 2016. This estimate might be conservative when you consider that Oracle and SAP alone did $58.5 billion in revenue last year, although to be fair both companies are more than SaaS.
That said, enterprise businesses are not easy to build. If you’re of the entrepreneurial blog reading crowd, you’re likely familiar with the refrain: “It’s become cheaper to start an enterprise business, but it’s still expensive to scale.” True that. But in an effort to create more actionable advice for budding Marc Benioff’s, I decided to analyze 12 recently IPO’d SaaS businesses to tease out more insights about what it takes to build a big enterprise software business.
You can start a successful enterprise business without an IPO but I’m focusing on businesses that have reached an IPO for two reasons: Data availability and the fact that an IPO is still the deus ex machina in people’s minds when they invest in SaaS businesses.
Here are the companies I looked at:
For this analysis, I used each company’s first S1 filing, the logic being that’s when everyone first feels that the company is ready for primetime. The business has reached a point where it’s comfortable sharing financials with potential public investors.
Here’s what I learned through this exercise. If you start a SaaS business you will not be Kevin Systrom; you will be Sisyphus. Because building a SaaS business takes a lot of time and money. In fact, the average time between founding and IPO was 9.5 years and the median was 8 years. At a minimum you’d have to expect to spend 7 years building your business, though it could take 13 years.
Meanwhile, raising money is painful, but if you start a SaaS business you should probably learn to love it because you’ll be doing a lot of it. On average, these companies raised 4.45 rounds of funding (not including seed rounds) with a median of 4. At a minimum, these companies raised 3 rounds and many raised 6 rounds (that’s a Series F, as in “F***, I need to do this again?!”)
The average amount of money raised by these companies was $109 million, with a median amount raised of $74.2 million. The lowest amount, by far, was Bazaarvoice at $19.9 million.
The most? More than $300 million.
So why does it cost so much to start a SaaS business? Feet on the street.
Enterprise software is competitive, so the need to have smart, savvy sales reps delivering insights face-to-face to potential buyers has not gone away. There’s no click-to-buy. You need real live, breathing, resource consuming human beings. As a result, 35% of the total employees at these companies, on average, were in sales and marketing at the time of the S1 filing, with a median of 37.6%.
Given the salaries commanded by talented sales reps, this translated into major expenses. As a percentage of revenue, sales and marketing expense was 45% on average, versus 20% for R&D and 15% for G&A respectively.
Here is another look at expenses as a percentage of revenue:
All of the investments in sales and marketing are there to accelerate and get to scale, but what is scale? Or at least enough scale to go public. Based on the companies I looked at, the average revenue for the most recent FY as of the S1 filing was $73 million with a median of $61 million. The smallest companies were at $36 million, the largest at $134 million.
In terms of employees, the average size was 532 and the median size was 363.
Generating the revenue needed to be at scale was not simply a matter of clicking a button to deploy software for these SaaS businesses. A significant portion of their total revenue came from professional services.
For the companies that broke out their revenue between “Subscription” and “Professional Services” the average percentage of total revenue derived from professional services was 20%, with a median of 17%. The implication is that SaaS businesses shouldn’t expect to be hands-off. Big companies demand great service, particularly from smaller vendors.
For those of you who haven’t read Valuation: Measuring and Managing the Value of Companies between Pacificos in Aruba, the central lesson of the book, and any corporate finance textbook, is that value is driven by cash flow, which springs from return on invested capital (ROIC) and growth. ROIC is simply operating profits adjusted for taxes divided by invested capital.
All of this comes together in a formula subtly titled the Zen of Corporate Finance: Value = (NOPLAT x (1-[growth/ROIC])) / (WACC – g)
Why does this matter? It matters because most SaaS businesses have little or no operating profit as they scale, so they need to grow with a capital “G” to command a good valuation.
For the companies analyzed, the average 1-year revenue CAGR as of their S1 filing was 59% and the average 2-year revenue CAGR was 75% (the medians were 55% 1-year CAGR and 85% 2-year CAGR).
These growth rates may not feel impressive, but keep in mind this growth is in dollars forked over by skeptical enterprise buyers.
Generally the more money these companies lost, the faster they grew.
There is of course some causation at play here. As I noted above, a SaaS business requires a lot of money to scale because scaling requires a big sales and marketing team, which is needed to achieve the rapid growth expected in the absence of cash flow, due in large part to sales and marketing costs. So these businesses are in a constant state of raising capital and scaling the sales team, in addition to building an awesome product and supporting it.
The circle looks something like this:
This approach is driven by two realities. These companies are pursuing large markets, with a lot of opportunity, and they are competing against behemoths and can’t show up to a gunfight with a knife.
So why go through the effort? Because SaaS business are great over the long-term. They yield powerful margins and recurring revenue. The average gross margin for these companies at their S1 filing date was 65% with a median of 66%.
The implication is that once these businesses have scaled, and more revenue is coming from renewals, the 45% of revenue spent on sales and marketing can be reduced. The result is a high margin business with predictability.
If you just spend 9.5 years raising $110 million dollars across five rounds of funding, and hire 530 employees, including a sales and marketing team of 160 people, while building a world-class product that can win in the hyper-competitive enterprise software business, to reach $70 million in annual revenue, you can create a high margin business with predictability.
Sure you don’t want to build a dating app?
Ben Sesser
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Sorry, NYC, Tumblr selling to Yahoo was not the “win” we needed
New York has advertising in its DNA. But somehow the city’s two most promising startups — Foursquare and Tumblr — have failed to capitalize on it.
We’re not surprised when Silicon Valley startups focus on product and eyeballs and then waltz into an ad agency’s office assuming advertisers are desperate to give them money. Valley startups are not supposed to understand how advertising works. Or so the stereotype goes.
What is surprising is the fact that Facebook and Twitter built large advertising businesses from the Valley, while Foursquare and Tumblr struggled to do so just two miles from Madison Avenue. Foursquare had a difficult round of fundraising earlier this year, narrowly avoiding a down round by taking on debt. And while Tumblr has crossed the symbolic $1 billion line with its sale to Yahoo, it did so with a gargantuan user base and pathetic $13 million in 2012 revenues according to reports. What ever happened to New York playing to its strengths?
New York tech companies have always been underdogs, not just in comparison to Silicon Valley, but in their own city where fashion, finance and media rule. Five years into this whole startup revival thing, tech is not dominant, no matter how often our cheerleader mayor stops by BuzzFeed’s offices.
Which is why New York techies are constantly yearning for big exits that prove how important the city’s tech industry is. Two memes are often cited in conversations about the future of New York:
1. We need a big consumer Web win to legitimize New York.
This is about taking New York out of the shadow of Doubleclick, and the impression that New York is good for adtech and fintech but not much else. So far our biggest exits haven’t done much to dissuade that argument: Ad exchange company Right Media sold to Yahoo in 2007 for $850 million. Social advertising SaaS platform Buddy Media sold to Salesforce.com last year for $689 million.
2. We need a big standalone tentpole company that doesn’t sell itself to a Valley company.
Again, Right Media and Buddy Media are both adtech companies… that sold to Valley companies.
Tumblr and Foursquare, with their floppy-haired, magazine cover-ready CEOs, were tasked with breaking both of those archetypes about New York startups. To do so, they took Silicon Valley approach of worrying about user growth and product first, monetization second. And wait they did. Tumblr, founded in 2007, spent the first six years of its existence thumbing its nose the advertising industry. Twentysomething founder and CEO David Karp famously said the idea of ads on Tumblr’s platform made him sick to his stomach. Foursquare was also skiddish about letting big brands onto its platform. The company always had vague plans to monetize by selling tools to the local restaurants and bars in its network, but never quite executed on that.
It’s not just Tumblr and Foursquare. The New York Tech Meetup famously bans questions from the audience about business models, possibly in an attempt to move New York away from the city’s rational, bootstrapping, revenue-focused reputation. In order to build the next Google, or Facebook, or Twitter, New York needs some magical thinking that goes beyond dollars and cents. We need to “let our winners run,” wrote Fred Wilson, whose firm, Union Square Ventures, has backed both Tumblr and Foursquare.
Well, they may have run too far.
We know how Foursquare has played out. The company, founded in 2009 and backed by $112 million in venture money, did little to earn revenue in its early days. Even in 2012, the company earned just $2 million, Businessweek reported. This year the company raised an emergency round of financing, mostly debt to avoid taking a down round.
Foursquare is building a sales team and revenue is growing with sponsored recommendations and promoted updates, CEO Dennis Crowley adamantly insists. He noted at a recent conference that Foursquare is now “routinely” signing up large national retailers with six-figure deals.
But this may come at the cost of its user experience. Last time I used Explore to find a restaurant nearby, Foursquare suggested I try Taco Bell. With four years of my check-in data, Foursquare should know that I have never eaten at a Taco Bell, and presumably that’s not because I’ve never heard of Taco Bell or never knew one was nearby. (In the US we can assume there is always a Taco Bell nearby, right?) And even if I liked Taco Bell, it’s a pretty lame suggestion. But Taco Bell has deeper pockets and a more sophisticated ad strategy than a local sandwich spot, so that’s the risk Foursquare is taking as it claws its way to revenue.
Tumblr has been slow to monetize too. The company has a very small business of selling templates and stickers, but it has avoided traditional ads, per Karp’s fear of tainting his community. He told the New York Times that Tumblr could be “wildly profitable” overnight, had it decided to switch on banner ads. With a network of 100 million blogs and 300 million monthly uniques, I have no doubt that he’s right.
Instead, Karp decided to go for brand advertising dollars, hiring people from the agency world to sell sponsored posts, a sort of “native ad” approach which is in-vogue at conference panels but represents a tiny portion of ad spend online.
The idea was there, and Tumblr was reportedly on track to earn $100 million this year by the rosiest estimates. Others say that figure will likely be flat, with Tumblr only pulling $15 million in revenue this year. Not great for a company valued at $800 million with 140 employees. Brands have been curious to try the platform, but they hadn’t allocated large budgets to the platform the way they have with Facebook and Twitter.
So when Marissa Mayer offered $1.1 billion, Karp took the offer. It’s a little ironic — Tumblr’s ambitions to bring TV-style creative brand advertising to the web echoed that of Yahoo’s in the early 00′s.
So how did Facebook and Twitter build big businesses with ads ($5 billion and a reported $350 million last year, respectively), while Foursquare and Tumblr could not? If there is something the Valley has that New York doesn’t, it’s not ad expertise. No, as far as I can tell, it is access to far more cash, and talent with experience in scaling.
Having room to run means you need fuel to power that run in the form of talent and capital. When consumer Web companies talk about not focusing on revenue, it’s a bit of a misnomer. The business model implicit to the Valley playbook is trading ever-escalating eyeballs for venture capital. Apparently that playbook only works — so far — in Silicon Valley.
Venture capitalist Chris Dixon, who has built two startups in New York which he sold to Silicon Valley companies, pointed to the benefits of scaling a company in Silicon Valley at our PandoMonthly last week:
In the Valley, he said, “There are people you just pull the people out of XYZ company who did that exact same thing there for the last 5 years. For employees 50-500, you’re not inventing a new thing, you’re just puling them off the shelf. … You get this whole second layer, right off the shelf and that dramatically accelerates that second stage, and if you look at a bunch of companies in New York and other places, they have to be more experimental, like, “Let me see if this person can do that job.” (Note: Dixon is an investor in PandoDaily.)
That’s not to say that, with Foursquare’s struggles and Tumblr’s sale, all hope is lost. In the last six months, a few new winners have emerged from New York’s tech scene. It started with Mayor Bloomberg’s We Are Made in NYcampaign. The campaign featured six New York startups chosen for their diversity of location, size and sector, featuring ads around the city in subways, taxis, and local media.
The list, which included AppNexus, Songza, Etsy, Dosomething.org, Kickstarter and Learnvest, notably excluded Foursquare and Tumblr. It felt odd — the Karp-Crowley one-two punch seemed a given for every list, article, and award related to New York, tech, youths, what’s hot, important people under a certain age, rising stars, disruptors, or revolutionizers. Their exclusion (or perhaps they declined) sent a quiet signal that the torch had been passed. New York’s tech scene is moving onto phase two: where companies aren’t ashamed of making money, and they don’t want to sell out.
The question is whether the torch has been passed to a group of companies with lower ambitions than its wide-eyed predecessors. Sure, Etsy and Shutterstock are easier to monetize than a mobile social network. But are we okay with trading easily monetized “base hits,” for startups with a greater risk and reward?
The new class of leaders I see emerging includes Jon Oringer, CEO and founder of Shutterstock. The company went public last Fall and is now valued at $1.64 billion. And Brian O’Kelley, CEO and founder of AppNexus, which is up to 400 employees and is expected to IPO next year. And Perry Chen of Kickstarter, who may not be comfortable as an “anchor” of New York’s tech scene but is beginning to speak more publicly about his company, defining who it is for (creative people!) and what it is not (a store). And Chad Dickerson of Etsy, who has outlined his company’s plan for providing investors with liquidity while keeping Etsy independent. And 10Gen, a company which is quietly sucking talent from Wall Street to build one of New York’s most exciting hardcore tech companies. And even Gilt Groupe, which should file to go public any day now and has, despite facing some rocky times when flash sales went out of vogue, given birth to its own mafia-like diaspora.
These are companies that don’t plan to sell and have put all the elements in place to ensure they end up in that position. Oh, and the most interesting thing about them? Only one relies on advertising.
[Illustration by Hallie Bateman]
Erin Griffith
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Flashback: How Yahoo Killed Flickr and Lost the Internet
In the wake of Yahoo's $1.1 billion acquisition of beloved social platform Tumblr
Yes, Yahoo's a different company now, especially with Marissa Mayer at the helm. And Tumblr, along with its price tag, are an order of magnitude larger than Flickr was when Yahoo bought it. There are differences. But the story of how Yahoo assimilated and then eroded a beloved property (first published on Gizmodo almost exactly one year ago) remains the cautionary tale for how acquisitions can go wrong. And if anything, a blueprint for what not to do if Yahoo wants to get it right this time. -BB
Web startups are made out of two things: people and code. The people make the code, and the code makes the people rich. Code is like a poem; it has to follow certain structural requirements, and yet out of that structure can come art. But code is art that does something. It is the assembly of something brand new from nothing but an idea.
This is the story of a wonderful idea. Something that had never been done before, a moment of change that shaped the Internet we know today. This is the story of Flickr. And how Yahoo bought it and murdered it and screwed itself out of relevance along the way.
Do you remember Flickr's tag line? It reads "almost certainly the best online photo management and sharing application in the world." It was an epic humble brag, a momentously tongue in cheek understatement.
Because until three years ago, of course Flickr was the best photo sharing service in the world. Nothing else could touch it. If you cared about digital photography, or wanted to share photos with friends, you were on Flickr.
Yet today, that tagline simply sounds like delusional posturing. The photo service that was once poised to take on the the world has now become an afterthought. Want to share photos on the Web? That's what Facebook is for. Want to look at the pictures your friends are snapping on the go? Fire up Instagram.
Even the notion of Flickr as an archive—as the place where you store all your photos as a backup—is becoming increasingly quaint as Dropbox, Microsoft, Google, Box.net, Amazon, Apple, and a host of others scramble to serve online gigs to our hungry desktops.
The site that once had the best social tools, the most vibrant userbase, and toppest-notch storage is rapidly passing into the irrelevance of abandonment. Its once bustling community now feels like an exurban neighborhood rocked by a housing crisis. Yards gone to seed. Rusting bikes in the front yard. Tattered flags. At address, after address, after address, no one is home.
It is a case study of what can go wrong when a nimble, innovative startup gets gobbled up by a behemoth that doesn't share its values. What happened to Flickr? The same thing that happened to so many other nimble, innovative startups who sold out for dollars and bandwidth: Yahoo.
Here's how it all went bad.
In the Beginning
Flickr famously began as a feature of another product. Husband-and-wife development team Stewart Butterfield and Caterina Fake had created a photo sharing feature for another product they were working on, Game Neverending. Butterfield and Fake were old-school Web types. The kind with low Metafilter user numbers and WELL accounts.
And because they knew the Web so fluently, they soon realized that their real product wasn't the game: It was this secondary feature, the ability to share photos online. This was 2003, and photo sharing was still very much a novel problem for people. Flickr was born.
It was a hit. Bloggers especially loved it, as it solved an age-old photo hosting problem. (This was during the hoary old days of the Web when storage actually cost money.)
Two years later, in 2005, Butterfield and Fake sold their company to Yahoo, whose deep pockets promised great things for Flickr's users. It upped the monthly storage limit to 100MB for free users, and removed it altogether for pro accounts, for example. Yahoo had bandwidth and engineering to burn. Things were going to be great; things are always going to be great the first time you embrace a new corporate mother.
When Startups Become Successes
Very few people manage to build successful startups. But when the one hits, it can change the status quo in an instant. Suddenly, those two elemental ingredients—people and code—become very valuable to the established companies that seem to reside on an untouchable corporate Mount Olympus. It would have to be an overwhelming compliment and sense of validation. How would you handle it? What if you made something beautiful and useful that changed the status quo? Would you sell it? Would you sell yourself?
That's the choice successful startup founders are faced with. Build something good, and the buyout offers start rolling in. But while selling out in most other fields of creative endeavor is frowned upon, it's a given on the Web.
Maybe it shouldn't be. For every YouTube, there are horror stories of great people with great products, squandered in the yawning maws of uncaring corporate integration. Dodgeball gets lost in Mountain View. Beloved bookmarking services like Delicious become fields of information left fallow.
Some upstarts take an independent path. Consider Foursquare. Or Twitter. Or Facebook. Each spurned buyout offers, and none has ever been stronger. All managed to find a business model over time. Or even StumbleUpon, which only found its feet after its founder re-purchased his company from eBay and spun it off again as an indie.
It's no secret that for many entrepreneurs, the exit is always the goal. It's about the sellout before the first line of code is written. But for a select group, products are meant to be art. They are meant to literally change the world. And for those, selling out can be especially problematic.
Flickr falls into that camp.
Integration Is The Enemy of Innovation
"Yahoo was a good fit initially," says Flickr co-founder Caterina Fake, who left the company in 2008. "We had offers from various companies, including Google, and I honestly think that Yahoo was a great steward. It was a great steward of the brand. It was allowed to flourish. In the subsequent two years after the acquisition, Flickr blossomed."
Yet even early on, there were signs that the transplant—which had seemed so successful at first—was going to fail. That the DNA didn't match. This was largely due to how this new appendage was grafted on by Yahoo's CorpDev department.
When a new startup comes into an established company, the first wall it typically hits is CorpDev, or corporate development: the group within a business that manages change. CorpDev is usually charged with planning corporate strategy—where a business will grow or shrink, the markets it will enter or exit, and what kind of contracts and deals it may strike with other companies. It often oversees acquisitions. It plans them. Approves them. And then it sets the terms.
When a big company gobbles up a smaller one, often only a fraction of the money is handed over up front. The rest comes later, based on the acquisition hitting a series of deliverables down the road. It's similar to how incentives are built into the contracts of professional athletes, except with engineering benchmarks instead of home runs.
Corpdev sets these milestones. They reflect the reason for the acquisition, and how the company—in Flickr's case, Yahoo—can leverage them. They're baked into the deal, and an acquisition integration team begins working immediately to make sure they are met. Typically, they're very engineering-based, designed to integrate the smaller company's product into the enormous corporate machine.
And because payment schedules are based on achieving those CorpDev terms, it means both companies have a vested (pun intended) interest in putting those milestones ahead of new features. They are a sledgehammer applied with great force to the feet of nimble development. Worse, they often completely ignore what made the smaller target valuable in the first place.
Take Upcoming, the calendaring site Yahoo bought not long after Flickr. It was a play to get local listings. Local data—especially in smaller cities or for smaller events—can be very hard to come by. Everyone ends up having the same stuff. But Upcoming's data was user-generated. It was different. Unique. Valuable.
The milestones for that acquisition were all based around integrating that local event data into Yahoo. Yahoo didn't care about Upcoming's users—the community that created the data. Yahoo's approach turned out to be completely backwards. The value of the the company was determined by the index itself, rather than how the index was built—which is to say, by the community.
It was a stunning failure in vision, and more or less the same thing happened at Flickr. All Yahoo cared about was the database its users had built and tagged. It didn't care about the community that had created it or (more importantly) continuing to grow that community by introducing new features.
"We spent a lot of time in meetings with CorpDev just defending the product and justifying our decisions," said a former Flickr team member.
And so when Flickr hit the ground at Yahoo it was crushed with engineering and service requirements it had to meet as per demands of the acquisition integration team. Those were a drain on resources, human and financial. Even though many of the resources came from Yahoo, they were debited against Flickr. This created an untenable cycle that actively hampered innovation.
"The money goes to the cash cows, not the cash calf," explains one former Flickr team member. If Flickr couldn't make bucks, it wouldn't get bucks (or talent, or resources).
Because Flickr wasn't as profitable as some of the other bigger properties, like Yahoo Mail or Yahoo Sports, it wasn't given the resources that were dedicated to other products. That meant it had to spend its resources on integration, rather than innovation. Which made it harder to attract new users, which meant it couldn't make as much money, which meant (full circle) it didn't get more resources. And so it goes.
As a result of being resource-starved, Flickr quit planting the anchors it needed to climb ever higher. It missed the boat on local, on real time, on mobile, and even ultimately on social—the field it pioneered. And so, it never became the Flickr of video; YouTube snagged that ring. It never became the Flickr of people, which was of course Facebook. It remained the Flickr of photos. At least, until Instagram came along.
The Flickr team was forced to focus on integration, not innovation. This played out in two key areas.
Socially Awkward
Flickr's best feature isn't what you think. It's not photo-sharing at all. Just as photo sharing was a feature hidden within a game, there was another feature hidden within photo-sharing that was even more powerful: social networking. Flickr was, nearly a decade ago, building what would become the Social Web.
The first point in Flickr's two point mission statement is to help people make their photos available to the people who matter to them. Flickr had—and still has—excellent tools for this. Flickr was an early site that let you identify relationships with fine grained controls—a person could be marked as family but not a friend, for example—instead of a binary friend/not friend relationship. You can mark your photos "private" and allow no one else to see them at all, or identify just one or two trusted friends who may view them. Or you can just share with friends, or family. Those granular controls encouraged sharing, and commenting, and interaction. What we are describing here, of course, is social networking.
It's hard to remember, but back in 2005, Yahoo seemed like it had its game on. After losing out on search dominance to Google, it snapped up a bunch of small-but-cool socially oriented companies like Flickr (social photos), Delicious (social bookmarking), and Upcoming (social calendaring). There was a real sense that Yahoo was doing the right thing. It was, to some extent, out in front of what would come to be widely known as Web 2.0: the participatory Internet.
But Yahoo's social success in those years was almost accidental. It wasn't (and isn't) a company with vision. Its founders Jerry Yang and David Filo's great contribution to the Internet? They built a directory of links and then sold ads on those pages.
It was a gateway, nothing more. This was hardly an innovative idea, or technically complicated to pull off. You don't have to write algorithms to build a portal. Yahoo was little more than an electronic edition of Yellow Pages.
The founders' influence on a company's culture is enormous, and Yang and Filo cared about business, not products or innovation. They didn't foster a culture of computer scientists, like Google's founders did, or cultivate hackers like Facebook. They grew a business culture. For many years that worked quite well—until Google came along. Suddenly nobody needed directories anymore. Why browse a hierarchy when you can jump directly to what you're looking for with a simple query?
Yahoo's CEO Terry Semel had failed to buy Google in 2001, when he had the chance. Now Yahoo was so focused on winning search that it essentially surrendered social. In 2005, Flickr had far and away the best social connection and discovery tools on the Internet. Remember, back then Facebook was still very much a fledgling service, one that didn't even let you upload pictures other than the one in your profile. Yahoo, meanwhile, had existing internal social products, like Address Book and Messenger. Social was clearly the future. What Yahoo wanted, however, wasn't the future. It was to re-fight an old battle from the past. It was to beat Google.
"By the time we were looking at Flickr, Yahoo was getting the shit kicked out of it by Google. The race was on to find other areas of search where we could build a commanding lead," says one high ranking Yahoo executive familiar with the deal.
Flickr offered a way to do that. Because Flickr photos were tagged and labeled and categorized so efficiently by users, they were highly searchable.
"That is the reason we bought Flickr—not the community. We didn't give a shit about that. The theory behind buying Flickr was not to increase social connections, it was to monetize the image index. It was totally not about social communities or social networking. It was certainly nothing to do with the users."
And that was the problem. At the time, the Web was rapidly becoming more social, and Flickr was at the forefront of that movement. It was all about groups and comments and identifying people as contacts, friends or family. To Yahoo, it was just a fucking database.
The first community problems became evident when Yahoo decided all existing Flickr users would need a Yahoo account to log in. That switchover occurred in 2007, and was part of the CorpDev integration process to establish a single sign on. Flickr set it to go live on the Ides of March.
From Yahoo's perspective, there was no choice but to revamp the login. For one, Flickr had grown internationally, and it had to localize to comply with local laws. Yahoo already had tools to solve this, because it had already expanded into other countries. It offered a ready-made solution.
But moreover, Yahoo needed to leverage this thing that it had just bought. Yahoo wanted to make sure that every one of its registered users could instantly use Flickr without having to register for it separately. It wanted Flickr to work seamlessly with Yahoo Mail. It wanted its services to sing together in harmony, rather than in cacophonous isolation. The first step in that is to create a unified login. That's great for Yahoo, but it didn't do anything for Flickr, and it certainly didn't do anything for Flickr's (extremely vocal) users.
Yahoo's RegID solution turned out to be a nightmare for the existing community. You could no longer use your existing Flickr login to get to your photos, you had to use a Yahoo one. If you did not already have a Yahoo account, you had to create one. And you did not even log in on Flickr's home page, upon arriving, you were immediately kicked over to a Yahoo login screen.
Although Flickr grew tremendously with the huge influx of Yahoo users, the existing community of highly influential early adopters was infuriated. It was an inelegant transition, and seemed to ignore what the community wanted (namely, a way to log in without having to sign up for a Yahoo account). This was the opposite of what people had come to expect from Flickr. It was anti-social.
And it very much delivered a message, to both users and to the team at Flickr: You're part of Yahoo now.
That message was also going out to Flickr's team. Flickr prided itself on customer care, which it considered a core part of community building. But Yahoo wanted to manage all that itself with its existing departments. One of Yahoo's goals was to move from a system of notice and takedown, to prescreening all the content members posted before it went up online. Flickr saw this as both a costly time-consuming task and one that could very well violate its members privacy, especially when talking about private photos. The Flickr team scheduled a meeting and headed down to corporate headquarters in Sunnyvale for an hour long presentation to make its case. Halfway through the meeting, the vice president who oversaw customer care for Yahoo looked at his watch, announced he had another meeting, and left. It was an open fuck you.
For Heather Champ, who was Flickr's head of community at the time, the meeting was the beginning of the end. "I came out of that meeting knowing I couldn't continue in my role. I didn't want to stay and watch them dismantle everything we'd worked so hard to build."
By mid-2008, a year after the RegID debacle, it was clear to most everyone that Facebook was the big up-and-coming social network. What had been a plaything for college kids and high schoolers was suddenly the network your mom, your dad, your gym coach, and everyone else you'd ever met was sending you friend requests from. Microsoft was pumping money into it, and it was fast approaching 100 million users.
Inside Yahoo, which itself had a massive user base and multiple social products, some were already warning that it was going to be bypassed in social just as it had been bypassed in search.
"I spent years at Yahoo trying to signal the alarm that Facebook was going to take over the adult market unless we stepped in and used our existing social networks to fight back," laments one former Yahoo engineer who worked on products at both the parent company and Flickr. "Obviously this never went anywhere for a multitude of reasons."
Yahoo had already tried to buy Facebook in 2006—for a billion goddamn dollars. And failed. Two years later Facebook was too big to buy. The only way to beat it was to come at it from another direction with a better product. Yahoo's best hope for that was Flickr. But by then it was too late.
"Flickr wasn't a startup anymore," explains the engineer, "people didn't really want to work that hard to turn the entire product around. Even if they had, Flickr [was] very techie hipster, many didn't use or like Facebook and considered it bland, boring, evil, poorly designed, etc., and were certainly not ready to fast follow it. Emphasis was put more on how things looked, and felt, rather than on metrics and on what worked. The whole experience was very frustrating for me all around, as I slowly watched Flickr and Yahoo fade into irrelevance."
The Unstoppable Force And His Immobile Object
There's a difference between a missed opportunity and a complete fuck-up. When Yahoo failed to capitalize on Flickr's social potential, that was a missed opportunity. But if you want to see where it completely fucked up, where it just butchered Flickr with dull knives and duller wit, turn on your phone and launch the Flickr app. Oh, what's that, you don't have one? Exactly.
Flickr had a robust mobile Web site way back in 2006—before the iPhone even shipped. You could use it with your piece of crap Symbian phone, or the dinky screen on your Sony Ericsson T68i. But it was basically just a browser. If you wanted to get a photo from your phone to your account, you had to email it.
And then in 2008, something happened that made the mobile Web a sideshow altogether: apps. The iPhone's App Store ushered in a new era that changed the way we interacted. People didn't want mobile web experiences that required them to skip from a camera app, to an editing app, back to the Web and possibly even over to email to upload and share an image. They wanted an app that did all those things. The Flickr team understood that. Unfortunately they couldn't do anything about it.
"Flickr was not empowered to build its own iOS app—or any other mobile app for that matter," laments one former Flickr executive. "You had this external team with strong opinions as to what the app should do."
It was here that the missions of the two companies truly collided, according to insiders. The Flickr app was a top-down decision, driven by Yahoo Mobile and its leader, Marco Boerries. The team at Flickr was iced out.
Boerries had a grandiose vision for something called "Connected Life." It was to be a socially seamless mobile experience that brought all your Yahoo services together in the palm of your hand, and connected them with the desktop. It was nothing short of what Apple and Google and Microsoft are all trying to do today with their cloud strategies.
Boerries was a maniac. He'd built a word processing program called StarWriter as a 16 year-old kid, grew it into the StarOffice suite and sold it to Sun for $74 million in 1999. By 2004, he was running around Silicon Valley giving a demo that was literally making people gasp in wonder.
He would walk into a room full of investors, pull out his crappy flip phone, and take a picture of the room. Then he'd pocket it, open his laptop and refresh the app running on his desktop. Suddenly, the visitors in the room would be confronted with their own skeptical faces. It was automatic. He then explained that he could do the same thing with any other type of data—emails, phone numbers, mp3s, whatever. Anything you did on the phone would be seamlessly reflected on the desktop, and vice versa. Basically, it was iCloud.
Yahoo bought his company in 2005 for something in the neighborhood of $16 million, largely to buy Boerries. A month later, it would buy Flickr.
Boerries was a genius, and, by all accounts, a nightmare to work with. One of the most frank depictions of this comes from Kellan Elliot-McCrea, Etsy's CTO who, in a past life, was the chief architect of Flickr. On Quora, he writes:
"Marco Boerries was without a doubt one of the most viciously political, and disliked Yahoo! execs and he reigned for 4 years over the Yahoo "Connected Life" team which had universal control over all native mobile experiences within Yahoo. Several Flickr internal attempts to build and ship native mobile experiences (going back to 2006) were squashed relentlessly."
The Yahoo Mobile team was onerously slow to get an app out the door. Although the iTunes App Store launched in July of 2008, Yahoo Mobile let a year slip away before it released an official Flickr app. When it finally did roll out the long-delayed beast in September of 2009, it was beyond disasterous. The early reviews on the iTunes App Store read like pre-alpha test notes of the world's worst software.
"Not enough functionality to be useful"
"it is SLOW and seems to slow down more with use"
"Was very excited about this app only to be let down. Hard."
"slow, buggy, terrible navigation."
"everything is painfully slow"
Among other problems, it wouldn't let you upload several photos at once, you had to go in manually submit them one at a time. It was downscaling photos to 450 x 600, murdering image quality. Users had to log in via Safari rather than in the app itself. It was striping EXIF data from photos as they uploaded—precisely the kind of thing Flickr's photo nerds wanted to see.
People. Fucking. Hated it.
The app landed like a pile of mud on a wedding gown. As one App Store reviewer put it, "For uploading to Flickr, this is really the worst app I've tried; you're better off just emailing photos direct from the phone in that respect."
It somehow managed to get Flickr's two key strengths—photo sharing and storage—completely wrong.
Possibly worst of all—at least from a business perspective—you couldn't sign up for a Flickr account from the app. (In fact, you still can't. It kicks you over to the Web to sign up with Yahoo if you want to register as a new user.) While other apps draw users into their Web services (think Foursquare, Twitter, Facebook, and notably Instagram) the Flickr app that Yahoo Mobile rolled out had no mechanism for that. It was not a recruitment tool. It was just for existing users.
"That was a big oversight," says Fake. That's an understatement. It was the mother of all fuckups.
Meanwhile, all manner of new apps were appearing that would not only snap photos for you, but process the images too. Things like Best Camera and Camera Bag were introducing consumers to the idea of applying automatic filters to their mobile photos. A little over a year after the Flickr app hit iTunes, another photography app came along that worked much like a quicker Flickr. It was called Instagram.
Today, it all seems too late. The iPhone is the most popular camera on Flickr, but the feeling isn't mutual. Flickr isn't even among the top 50 free photography apps in iTunes. It's just below an Instagram clone in 64th place. By way of comparison, an app that adds cats with laser eyes to your photos is 23rd.
If you can't beat laser cat, you probably deserve to die.
What Next
Flickr's mobile and social failures are ultimately both symptoms of the same problem: a big company trying to reinvent itself by gobbling up smaller ones, and then wasting what it has. The story of Flickr is not that dissimilar to the story of Google's buyout of Dodgeball, or Aol's purchase of Brizzly. Beloved Internet services with dedicated communities, dashed upon the rocks of unwieldy companies overrun with vice presidents.
As a result, Flickr today is a very different site than it was five years ago. It's an Internet backwater. It's not socially appealing.
Recently, Flickr rolled out a "Justified" view, a way to scan your friends' recent photos where they are all placed together like puzzle pieces. It's similar to the way Pinterest lays out images. It's a dramatic, gorgeous way to look at photos—that mostly highlights how rarely many people update now.
As I scroll down I note that friend after friend has quit posting. At the bottom of the page I am already back in mid 2010. So many of my friends have vanished. It feels like MySpace, circa 2009.
This is anecdotal, sure, but I follow many of these same people on other networks (Path, Facebook, Instagram) where they tend to be very active. I see photos of the same people, with their same children and their same dogs—all looking a year or two older than on Flickr.
This justified view also serves to highlight just how many of my friends' photos are formatted in perfect squares—the tell-tale sign of an Instagram snap that's been exported. Many of my contacts' entire photostreams are made up of Instagram photos. In other words they are mere duplicate streams—with fewer comments and activity—of content that exists in primary form elsewhere. The only reason they are active on Flickr at all is because they automatically export there.
There are other signals as well. On Stellar.io, a favorites aggregator that tracks what people are linking on Twitter, YouTube, Vimeo and Flickr, the latter's links fail to show up even daily in my stream. And of course, there is that damning Quantcast traffic chart.
Despite years of neglect, Flickr's miniscule yet highly talented team is trying desperately to right the ship.
Flickr began the year by killing off a slew of features that didn't really make sense—like Photo Sessions, a baffling feature that let you show real time slideshows of your pictures to other people that had Yahoo written all over it. It's also hustling to roll out many more, like that new Justified View and an Uploader that runs on HTML 5. It replaced its photo editor (formerly Google-owned and now defunct Picnik) with and HTML5 tool called Aviary, which lets people make changes to their photos without leaving the page and will play nice with tablets. It's showing pro members photos at 1600 and 2048 pixels now to take advantage of Retina Displays.
Flickr's product manager Markus Spiering notes that his team gets what it needs from Yahoo now. (Of course, you'd also assume he has to say that. But still.)
"We do have a lot of resources which are also within the main company. The people you see on the About page are the core team you see on San Francisco, but a lot of the horizontal development efforts are shared."
And that hated Yahoo-only login? Gone.
"We don't care so much about what kind of passport you have—a Google ID, Facebook," he says. "At the same time, we let you share your images to various places. There are a lot of solid and easy to understand privacy controls, and we see ourselves as the centerpiece.
"That's where we're pushing Flickr towards where it's a beautiful, photo centric experience. But whatever you are using, it gets your photos there."
Mobile is still a disaster. Flickr's iOS app, though improved from the one it rolled out in 2009, is still just awful. It still requires you to log into Yahoo via Safari, for example. And it doesn't offer even the most basic of photo editing or filters that seemingly every other camera app provides.
"I think I can honestly say that especially on iOS we need to provide a better Flickr experience in terms of our own app, but that's something we are working very hard on," says Spiering.
So let's say Flickr finally gets it together. Let's say it fixes its app, reinvigorates the community, and finally gets back on path. The question is: Is it too late?
It's under attack not just from Facebook and Instagram and, hell, TwitPic and Imgur (Imgur for fuck's sake!) but also the likes of Dropbox, Google Drive, Skydrive, and Box.net. Not to mention Apple's iCloud and PhotoStream, Google's Picasa, and yes even Google+, which does automatic photo uploads from Android handsets in glorious full resolution complete with geotags and EXIF data.
A comeback doesn't seem likely.
Flickr is still very valuable. It has a massive database of geotagged, Creative Commons- and Getty-licensed, subject-tagged photos. But sadly, Yahoo's steady march of incompetence doesn't bode well for making use of these valuable properties. If the Internet really were a series of tubes, Yahoo would be the leaking sewage pipe, covering everything it comes in contact with in watered-down shit.
Flickr's last best hope is that Yahoo realizes its value and decides to spin it off for a few bucks before both drop down into a final death spiral. But even if that happens, Flickr has a long road ahead of it to relevance. People don't tend to come back to homes they've already abandoned.
Flickr is still pretty wonderful. But it's lovely in the same way a box of old photos you've stashed under the bed is. It's an archive of nostalgia that you love dearly, on the rare occasion you stumble across it. You pull them out, and hold them up to the light, and remember a time when you were younger, and the Web was a more optimistic place, and it really was almost certainly the best online photo management and sharing application in the world.
And then you close the box.
And you click over to Facebook, to see what's new.
Image: Shutterstock/Vince Clements
Facebook ponders its place in the Internet of Things
Amidst all of the buzz surrounding connected devices and ubiquitous computing, there’s Facebook, which wants to move beyond connecting mere humans. Cory Ondrejka, Facebook’s director of mobile engineering, says the social network is in a unique position to tie together all of the disparate devices that make up the Internet of things – the category of everyday objects, like scales, toasters, watches, glasses and whatever else you can think of, having wi-fi and data-collecting capabilities. Along the way a number of questions will need to be answered, such as who will receive this information, what usefulness will it have, and how will privacy play out.
Take the who part. For devices that send out updates to social networks – like, say, the Nike FuelBand tweeting out how fast you ran a mile — one big question going forward will be discriminating who gets those updates. “How do you think about where that info goes, and how you want to share it?” asked Ondrejka at Techonomy Media’s “Man, Machine and the Network” event last night.
The success of those products’ social sharing functions on Facebook will depend on finding the right use cases, and the right audience. Ondrejka uses the Nest learning thermostat as a prime example. The device is wi-fi enabled, and, among other things, automatically changes the air temperature in a home according to a user’s preferences, and allows him to control it remotely. The notion of sharing the temperature of one’s home on a social network sounds pointless until you take into account certain contexts, he says.
For example, if your aging parents own one, getting thermostat updates could be a lightweight way to make sure they’re safe and healthy, with the temperature fluctuating as the result of people inhabiting the house. (Of course, you could also give your folks a call to make sure they are fine, but the example gets the point across, and it does function as an odd type of push notification.) Even more useful, if the temperature rises so high that you can presume the house is on fire, it would be helpful for the neighbors to get that temperature update.
For Facebook, it’s a dive back into the oldest contentious discussion in the company’s history (even before people started squabbling over the IPO): privacy. Author David Kirkpatrick, who interviewed Ondrejka during the fireside chat – and wrote “The Facebook Effect” – was quick to point out that Facebook was the first major Internet property to focus on bringing privacy controls to the forefront. Of course, given the backlash that often surrounds issues of users’ privacy, that will do little to mitigate users concerns.
Ondrejka said that one of the stats that Facebook watches most closely is how often people change the privacy settings on individual posts – tailoring what audience gets to see the update. That indicates how simple the privacy controls are, and provides insight into user behavior. “The natural extension of that is with devices, and information on things like how healthy you are,” he said. “You want to know who gets access to that.”
He admitted that no developers or brands have used a connected device’s sharing features in any prominent way yet on Facebook’s platform, but claimed it’s only a matter of time before more devices become connected devices, and users will operate them through Facebook. Tailoring the audience for such posts seems in line with the company’s recent strategies. More broadly, Facebook has made a big bet on private messaging, and has crowed that messages sent on Facebook Messenger have quadrupled since last year. It’s also the reason the company put Chat Heads on both iOS and Android, when it was initially introduced as part of the Facebook Home suite.
So the company has been working on improving the experience of small-audience messaging and posting. That’s probably a good idea when your bathroom scale has the ability to tell all your Facebook friends that you put on 10 lbs.
Richard Nieva
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How to Handle Instagram Tagging Without Being an Asshole
We've all been victims of the distasteful Facebook tag at one point or another, and we've all felt that tiny shiver down our spine when that fateful red "1" tells us [insert casual acquaintance] just tagged a new photo of you. That feeling won't be going away anytime soon—today Instagram's "Photos of You" tagging system
If You're the Tagger
If someone already has a public Instagram profile, then of course tagging is technically fair game. You should be able to shout your picture's participants freely and without restraint, right? Sure, if you want to be a jerk.
When Facebook photos first appeared and tagging as we know it came to be, there was an initial dark period where we delighted in posting horrible photos of our friends and making sure they were good and tagged for all the world to see. And then we realized that just as easy as it was to publicly shame our peers, retaliation was also just a click away.
We're not animals anymore. We've learned our lesson and moved on to a more civilized form of existence, so there's no need to go back to our cruel, haphazard tagging ways just because we've been given a new outlet. No one wants to be reminded even once much less for the rest of their Instagram lives how terrible, drunk, desperate, and/or naked they looked, even if the black and white does make them a tasteful naked drunk.
By all means, tag the intentional and flattering pictures full of good, clean fun. But if you must take horrible photos, leave them for your subject to find with nothing more than a shoutout in the caption, which they can then immediately forget—lest the same happen to you.
If You're the Tagee
Should your friends insist on tagging photos of you in a delicate condition, Instagram has, fortunately, given you the necessary tools to save yourself from embarrassment and a lack of future career prospects.
The newest version of Instagram carries a "Photos of You" section that gives both you and the world an easy way to track your filtered comings and goings. Now, you have several options when it comes to both saving face and saving the world from seeing you in your most unholy incarnations.
First, you can choose to hide the tag, removing the offending photo from your profile section but keeping the actual tag on the photo for easy identification. Or if you really want to send the message home and remove all traces of any sort of tacit approval on your part, you can choose to delete the tag entirely. Your last resort and one that should only be used in moments of the utmost desperation is to report the photo as inappropriate in hopes that the Instagram powers that be see the abomination and agree.
This is all only an issue if you demand to maintain a public profile, though. If you choose to make your Instagram profile private, any and all tagged pictures on your "Photos of You" page will remain for your pre-approved friends' eyes and their eyes alone.
But if even that is too much for you to handle, there is one final option. Stop doing embarrassing things.
Evernote, Twitter and Facebook apps for Google Glass announced
Major players get official apps for Google's smart glasses
Following the start of this year's Google I/O developer conference, Evernote, Twitter and Facebook have announced official apps for Google Glass. If you're among the lucky few people packing "explorer edition" Glass devices, you can turn on these new applications by heading to your MyGlass page at google.com/myglass and enabling the app you want.
While the Facebook app for Glass is primarily focused on sharing pictures you've taken on the device, the Twitter app offers much of the functionality of a full-blown Twitter app, including the ability to send and receive regular tweets, images retweets and direct messages. (You might remember Twitter for Glass has been rumored for some time.)
Evernote, on the other hand, focuses on quickly added photo or video snippets to your notes, and sending existing notes to your Glass timeline, so it's always within view. These are small first steps, but it's early days for Glass, and we can't wait to see what developers come up with in the months ahead.
If you're rocking Glass already, be sure to hit the comments and share your thoughts on these new apps.
Source: Evernote, Twitter, Facebook
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