AOL Confirms Layoffs As Verizon Looks To Cut Overlap

by
Kif Leswing

@FortuneMagazine

December 8, 2015, 12:08 PM EDT

AOL has laid off about 100 employees as it integrates with its new corporate parent, Verizon, TechCrunch reported on Tuesday.

The latest round of layoffs was not completely unexpected. Verizon purchased AOL for $4.4 billion earlier this year, and many AOL units also overlap with existing Verizon divisions. Reuters confirmed the cuts with an AOL spokesperson, who said “we are aligning the organization for the same level of growth in 2016.”

As many as two-thirds of the cuts are in AOL’s membership division, which handles legacy business: Mainly its famous dial-up service, but also AOL Mail and AIM. According to the report, some staffers in marketing and social media roles have also been affected, but the majority of the layoffs focus on the “operations layer,” according to the report. The layoffs are just under 2% of AOL’s 6,000 workers.

Verizon bought AOL for its advertising technology and video operations, not its dial-up business. Still, it generates a substantial amount of revenue, mostly due to the fact that 2.1 million people still use AOL dial-up, paying an average of $20 per month. The last time that AOL reported earnings as an independent company, the membership division generated $186 million in revenue in a single quarter.

MORE: Verizon Dials Up a Possible Yahoo Deal

However, Verizon vz has its own Internet subscription products and consumer service departments, so it makes sense to reduce overlap where possible.

“The market changes and we at AOL change ahead of the market. As we have continued to do over the last six years, we have re-aligned a handful of key customer functions to put our consumers and customers more squarely at the center. We have done 3 years of deals in the last 6 months,” an AOL spokesperson said in a statement provided to TechCrunch.

AOL held a round of layoffs earlier this year before Verizon purchased it, cutting 150 employees mostly in its sales department, although several of AOL’s underperforming web publications were shuttered as well.

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Coming Sept. 9: Apple TV’s one-two punch

by
Kif Leswing

@FortuneMagazine

August 29, 2015, 3:18 PM EDT

What good is a new Apple TV box without new TV programs to stream through it?

That’s a question Apple watchers have been asking since contract talks with content providers broke down (again) and the trade press began reporting that Apple was prepared to launch a new set-top box in September without its rumored “skinny bundle” of must-have programming.

On Friday, TechCrunch’s Matthew Panzarino offered an answer. And not just any answer. One well-connected Apple pundit called it “the most-informed, best-written piece on Apple TV that you will find before September 9.”

Panzarino’s theory, assembled from earlier rumors and a bit of his own reporting, is that what Apple will unveil in a week and a half is not just a new set-top box, but a new computing platform—one so compelling in its own right that it will strengthen Apple’s negotiating position with content providers and finally break the logjam.

His conclusion:

“Some very smart people I’ve been talking to suggest that, by building a platform, Apple is generating leverage that it can use to great effect in these negotiations. A mid-market breakout box offering is one thing, but a huge, rumbling platform with an upward trajectory of living-room dominating apps and third-party content is another beast. If, obviously if, Apple is successful with the Apple TV, it could be in a position to dominate content in a way that no other ‘smart’ TV platform has before it.

“If Apple did indeed ‘delay’ the Apple TV from being released at WWDC, then it probably had a reason. And, if my sources are correct, that reason could well be polish, polish, polish. The experience of using it is said to blow away the types of junky smart TV interfaces we’ve had to deal with so far. This is the first real Apple TV product.”

If you’re interested in Apple and the future of television, Panzarino’s Apple Is About To Lay Down Its TV Cards is a must-read.

Follow Philip Elmer-DeWitt on Twitter at @philiped. Read his Apple AAPL coverage at fortune.com/ped or subscribe via his RSS feed.

Google Photos will soon solve all your storage needs

by
Kif Leswing

@FortuneMagazine

May 28, 2015, 1:36 PM EDT

Google is ready to store your personal photo stash — and you won’t have to log into Google+ to make it happen.

Google Photos, as the new service is called, will premiere today at the tech giant’s annual developer conference in San Francisco, according to TechCrunch. The new digital photo album has been rumored for weeks.

Here’s what TechCrunch has been able to glean so far:

Google Photos will take over the photos.google.com address that currently directs to Google+.
It will have unlimited storage, though it’s unclear if there will be any exceptions to that promise. Previously, if you’ve been storing photos on Picasa or Google+, it ate up a portion of your Gmail/Drive storage limits.
Photo sizes will likely be capped at 16 megapixels. Video resolution can be as big as 1080p.
Google GOOG will also debut a new Photos app for Android that has better photo sorting capabilities.

For more about Google, watch this Fortune video:

Verizon has likely already hung a ‘For Sale’ sign on The Huffington Post

by
Kif Leswing

@FortuneMagazine

May 12, 2015, 1:51 PM EDT

So Verizon said on Tuesday that it intends to acquire AOL for $4.4 billion to become the “world’s biggest media platform,” a story that was first reported—fittingly enough—by one of the media entities that Verizon will soon own, the news site TechCrunch. But does Verizon really want to be the kind of media company that runs a property like TechCrunch or the Huffington Post? That seems unlikely, which is why I think we will see them spun off or sold fairly quickly.

In fact, having a telecom company like Verizon VZ running a publisher like the Huffington Post doesn’t just seem unlikely—it seems like a terrible fit for a number of reasons, and there are probably many journalists at both HuffPo and TechCrunch who are fervently hoping that Verizon sees it that way as well.

One of the first references that popped up after the deal was announced—other than the obvious comparison to the disastrous Time Warner-AOL merger—was to Verizon’s recent attempt to create its own tech-news site, a short-lived effort known as SugarString. After reports that the telecom company had forbidden writers from covering the topic of net neutrality, the site went dark and has never been heard from since. Not a great advertisement for Verizon as a media owner.

Verizon buying AOL http://t.co/i28ujqJxmt must leave editorial at TechCrunch & Engadget thinking about SugarString http://t.co/KWpHV89pFI

— Anil Dash (@anildash) May 12, 2015

But even beyond that kind of cultural dissonance between the two businesses, it’s difficult to see what Verizon would gain from operating TechCrunch or the Huffington Post. Although the Post commands fairly impressive traffic by comparison to some other online news outlets, that’s unlikely to make much of a financial difference to a company like Verizon, nor is it going to help the company with its main line of business.

Offering access to TechCrunch or HuffPo media content to Verizon wireless customers feels like the kind of “vertical integration” nonsense that was popular around the time of the Time Warner-AOL debacle, which still stands as one of the most horrific destructions of shareholder value since ancient Rome. Since neither site has a paywall or proprietary content, giving Verizon subscribers access to their content is like the bank throwing in an offer of tap water with your mortgage.

As my colleague Erin Griffith points out, the one aspect of AOL’s AOL media business that probably does interest Verizon is the company’s ad-serving technology, which CEO Tim Armstrong has spent years developing with a specific focus on mobile. That’s something Verizon could at least theoretically use to boost its own mobile offerings for brands.

In fact, there’s an argument to be made—as Dennis Berman does at the Wall Street Journal—that the Verizon bid for AOL says more about Verizon’s difficulties than it does about any intrinsic value that its target might have. Paying $50 a share for AOL is so far above any realistic value for that company that it feels more like a Hail Mary pass than a strategy that comes out of some consistent vision of the company’s future.

So what happens to Huffington Post and AOL now? The former seems like a natural fit with a number of existing media players, including German giant Axel Springer—and Re/code’s Kara Swisher reports that the two have already been in talks about such a potential deal, one with a theoretical value as high as $1 billion.

AOL CEO on second-spin idea: “We’ve seen a lot of interest in the content brands we have. So over the course of the summer, stay tuned.”

— Peter Kafka (@pkafka) May 12, 2015

Yahoo YHOO is another potential acquirer of either HuffPo or TechCrunch or both, since it is trying desperately to bulk up on the media side. Yahoo was also seen at one point as a potential buyer of AOL itself, although it felt at the time as though that was more of a desperate attempt by Tim Armstrong to generate some kind of value from the company. Yahoo CEO Marissa Mayer was apparently never as interested as Armstrong wanted her to be in such an arrangement.

The other option would be to spin off both the Huffington Post and TechCrunch as a single unit. But that would be a difficult business to justify as a standalone entity, at least from a financial perspective. (My colleague Dan Primack offered his own evaluation from a financier’s point of view.) While the Post has large traffic numbers, it doesn’t spin off very large amounts of cash, and TechCrunch’s best days are arguably behind it. The unit of AOL that both belong to generated income of just $13 million in the first quarter of this year.

Both would make more sense as parts of existing media companies, where synergies could come into play between more traditional assets and the online businesses of those two sites. The only question is who would want them, and why?

Apple’s big event is finally here — five things to watch for in the week ahead

by
Kif Leswing

@FortuneMagazine

September 7, 2014, 7:06 PM EDT

Hello, friends and Fortune readers.

It’s the second week in September and that means one thing – a huge Apple event. A number of new products are expected. The question is whether they’ll live up to all the hype. It’s also a big week for some big consumer brands like Barnes & Noble, Campbell Soup, and Lululemon, which will announce earnings. With that said, here’s what you need to know to prepare for the week ahead.

1. Once again, it’s all about Apple

The time has come for the unveiling of Apple’s new products on Tuesday including an expected iPhone 6 and an iWatch smartwatch. There’s been gallons of ink (real and digital) already spilled by the media speculating about what will be announced. Tune into Fortune for a live-blog of the event starting just before 1 pm EST). The wild card is Apple CEO Tim Cook will mention the latest wrinkle: The nude celebrity photo hackings into Apple’s iCloud service.

2. But don’t forget about TechCrunch

Amid all the attention on the Apple event, it’d be a mistake to forget about TechCrunch Disrupt in San Francisco running Monday through Wednesday. The annual conference features speakers including Theranos CEO Elizabeth Holmes, who was featured in a June Fortune cover story, Yahoo CEO Marissa Mayer and the always irascible Mark Cuban.

3. Expect a reports round-up, too

It’s time once more for retail sales numbers – in this case for the month of August. The data will be available at 8:30am EST on Friday. Expect those numbers to be a mixed bag, with some stores reporting declines, but others getting a back-to-school lift. But retail sales and consumer spending overall have been suffering, according to Fortune. Other numbers to be released next week? The weekly jobless claims numbers on Thursday at 8:30am EST, while the NFIB’s small business survey comes out at 7:30am EST on Tuesday.

4. Prepare to read up on retail earnings galore

And speaking about retail, Barnes & Noble comes out with its earnings report on Tuesday before the market opens. It’ll be the bookseller’s first quarter results for the 2015 fiscal year. The book retailer is finishing up plans announced back in June to split its retail and Nook units into two public companies in a bid to bolster the e-reader business. That’s expected to be completed by March, according to The Wall Street Journal. Also important: Men’s Warehouse on Wednesday, and Lululemon Athletica on Thursday.

5. Food, glorious, food earnings

Retail aside, it’s a relatively tasty week for food earnings. Campbell Soup will announce its results on Monday before the market opens. Another earnings report to be served up: Krispy Kreme on Tuesday, after the close. The doughnut company made a mark last year for baking up a business turnaround. There’s also Darden Restaurants reporting of Friday in its first full quarter after selling off Red Lobster. And if you can’t get enough of your food biz news, check out Fortune’s round-up of “The Most Innovative Women in Food and Drink.”

Unemployment, Starbucks, and predicting the NFL — five things to know today

by
Kif Leswing

@FortuneMagazine

September 5, 2014, 8:05 AM EDT

Hello, friends and Fortune readers.

Happy Friday! In a sign that summer is officially behind us, last night was the first game of the new NFL season, and at least one company isn’t letting the opportunity pass without getting in on the action. Here’s that plus everything else you need to know in business today:

Unemployment numbers come out today

It’s been a busy week for jobs numbers, and the big one comes out today — the monthly unemployment rate. One analyst at CNBC actually thinks that Fed chair Janet Yellen would welcome a rising unemployment rate, since it would help prove her general approach to the economy.

TechCrunch Hackathon kicks off tomorrow

The big TechCrunch Disrupt conference kicks off next week (where it will surely be outshone by a certain announcement Apple is making on Tuesday!) but this weekend is the annual Hackathon that precedes the conference. Successful startups like GroupMe (which sold to Skype) started off as hackathon projects, so its worth keeping an eye on.

The way you get your latte could be changing

Starbucks is going to be opening two new types of stores this fall — one for the java connoisseur and one for the busy urbanite. The Seattle chain will be launching around 100 stores with limited edition coffees, plus offering the special brews at 800 and 1,500 existing stores. It will also be opening a number of smaller “express” stores with limited menus to cut down on lines.

Apple ramps up security

In response to the ongoing celebrity nude pictures scandal, Apple is ramping up security for the iCloud. Actions like sending alerts when password changes are requested could cut down on hacking, or, at least alert the victim to an attempt.

Microsoft is predicting NFL games now

This summer, Microsoft’s Cortana predicted 15 of 16 World Cup knockout games correctly. Now, the personal assistant is having a go at the NFL. It was right about last night’s kickoff game (the Seattle Seahawks beat the Green Bay Packers 36-16). Can the magic continue?

Got bitcoins to spend? Here are some options

by
Kif Leswing

@FortuneMagazine

June 11, 2014, 2:48 PM EDT

Expedia has become the latest company to legitimize the bitcoin craze.

On Wednesday, the travel site said it will start accepting the digital currency for hotel bookings, joining a growing list of well-known retailers and companies now accepting bitcoins. Coinbase, a third-party bitcoin payment processor, works with over 32,000 businesses that accept the digital currency, including Expedia.

While there are the expected online niche businesses accepting bitcoin, such as Reddit and 4Chan, more and more mainstream companies are starting to consider it as a payment option. Apple recently updated its application developer guidelines to pave the way for future bitcoin acceptance, and EBay’s CEO said recently the company is considering adding the option to its namesake auction site and PayPal.

Even tracking the value of bitcoin has reached the mainstream this year. On its eponymous terminal, Bloomberg integrated bitcoin tracking in April, offering live exchange information. Meanwhile, everyday bitcoin investors can turn to Mint.com where the site will track the investment alongside 401(k) and IRA accounts.

Once you’ve got a good handle on the value of your digital holdings, here are just some of the many places you can spend your hard-earned bitcoins.

Buy more than illegal substances.

Overstock.com started accepting bitcoin in January and after 50 days sales using the digital currency surpassed $1 million. More than half of all customers paying with the digital currency were new to Overstock.

Etsy has 500 vendors that are part of the bitcoin vendors group, indicating that the sellers accept the digital currency for their DIY creations. Adding “bitcoin” to the site search brings up even more vendor options.

Get the news.

Chicago Sun-Times, the 167-year-old newspaper, will take your digital payments for its print or online subscriptions.

Pay your bills.

Dish Networks announced in May that customers can pay their monthly bills online using bitcoin, becoming the largest company to do so.

Catch a game.

The NBA’s Sacramento Kings and MLS’ San Jose Earthquakes are two sports teams that accept bitcoin for ticket purchases, gear and, for the Quakes, even a churro or beer at the stadium.

Make a donation.

The Federal Election Committee approved bitcoin for political campaign contributions. Congressman Jared Polis’ campaign was the first to start soliciting donations using the digital currency and has processed more than $1,000 worth of bitcoin since the May debut.

Hitch a ride.

Virgin Galactic welcomes bitcoins for its commercial space flights. “Virgin Galactic is a bold entrepreneurial technology,” Sir Richard Branson told CNBC. “It’s driving a revolution. And bitcoin is doing just the same when it comes to inventing a new currency.”

Do serious business.

Wedbush Securities, a leading financial services provider, accepts bitcoin payments for its research coverage.

TechCrunch opened up an option to attend its recent Disrupt Conference by using the digital currency to cover the nearly $3,000 general admission fee.

And many more.

WordPress, OkCupid, Zynga and Cheapair.com are also all on board with bitcoin payments.

Zendesk vs. Box: Why investors are split

by
Kif Leswing

@FortuneMagazine

May 20, 2014, 11:33 AM EDT

FORTUNE — Shortly after Box filed for its IPO last month, Zendesk ZEN filed to go public also. TechCrunch concluded that the “Zendesk IPO bears striking similarities to Box,” and I recall wanting to rebut that conclusion but never got around to it. However, the best rebuttal came last week when Zendesk not only became a public company, its stock price has shot up 83% since its debut on Wall Street, Box remains in limbo.

What happened? Aren’t these very similar companies?

These companies are very different and a recent change in investor sentiment helps explain why investors overwhelmingly favor one company more than the other.

Not long ago, investors valued growth over any other metric. On growth alone, Box looks fantastic – one of the best SaaS companies of all time. However, investors are suddenly more interested in growth efficiency – that is, a credible path to profitability and growth.

Zendesk is on a great (i.e. capital efficient) growth path and compares favorably against some of the best SaaS companies of all time when judged against a key industry metric called the Magic Number, which factors how much revenue growth is generated in a particular period per unit of sales, as well as how much is spent on marketing in the prior period. In contrast, Box magic number ranks far below average.

The graph below shows the magic numbers of 16 top SaaS companies around the time their businesses reached $100 million in revenue. The blue bars represent the “annual magic number” (AMN) which is the magic number for the year (left axis) and the orange lines represent the revenue in that year (right axis).

What stands out is that Box’s AMN of 0.66 is 34% below the median of the 16 companies shown below, while Zendesk’s AMN of 1.49 is higher than most including Salesforce.com CRM in 2004. The bottom line is when comparing AMNs, Zendesk is 2.3 times better than Box. That, along with a subtle but important change in investor preferences helps explain the diverging paths of these two companies.

Ho Nam is a co-founder and General Partner of Altos Ventures a venture capital firm with offices in Menlo Park, California and Seoul, South Korea. Altos has invested in a number of Software as a Service (SaaS) companies since 1999 including BrightEdge, DemandTec (IBM) and WhiteHat Security.

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