Useful News for You

If you look at the most successful startups today, you’ll find plenty of proof that the hardware-enabled service (Haas) model works: Peloton, Particle, Latch and Igloohome all rely on subscriptions along with product sales. Even tech giants like Apple are rapidly reinventing themselves as service companies.

Yet, if you currently rely on device sales, the prospect of changing your entire business model might seem daunting.

At Minut, we are building smart home monitors (privacy-safe noise, motion and temperature monitoring) and recently made the transition despite the lack of resources on the process. Here are the seven lessons we learned:

1. It is a question of when  —  not if.
2. The transition will have company-wide impact.
3. Your current and future target audience may differ.
4. Price should reflect the value for the customer. Your revenue should grow with theirs.
5. Avoid your free offer competing with your premium ones.
6. Be transparent (internally and externally) about the changes. Over-communicate.
7. Start the process early, check regularly with your team and set measurable targets.

Why subscriptions are the future of industry (and your startup)

Hardware has one advantage over software: customers understand there is a cost to your product. Now, this allows hardware startups to generate revenue with their first iteration, but it’s unsustainable as the company grows and needs to innovate: the software and user experience need continuous improvement and excellent support, just like in a software-only startup.

That’s why we see most hardware startups eventually launching a subscription model and limit what’s available for free. Even established companies  —  think Strava or Wink  —  often end up having to radically limit free features after years of operations.

Experienced founders and financial markets favor subscription models and recurring revenue. Market valuation multiples are typically much higher for companies that benefit from service revenue in addition to sales.

Years after Daphne Koller left academia to pursue its reinvention with Coursera, circumstances have conspired to return her to a passion left by the wayside. Big data, machine learning and biology are suddenly in syzygy and Koller is intent on making the most of it with her new company, Insitro — and telling us all about it at Disrupt SF 2020.

Koller was working on applying machine learning techniques to biology as early as 2000 during her tenure at Stanford. But the concept was hardly the household word it is today; The ML techniques we’ve come to rely on in practically every domain were then quite primitive by comparison, yet to many a forward-thinking mind clearly a tool with immense promise.

Leaving in 2012 to join Andrew Ng in founding one of the original MOOC platforms, Coursera, Koller temporarily left behind the world of computational biology. Four years later, however, she left Coursera to head up computing efforts at Google’s health R&D arm, Calico. Her work here clearly inspired to go her own way in 2018 and — with the blessing of GV and others to the tune of $100M — found Insitro.

The cost of developing new drugs can reach into the billions, making it impractical for pharmaceutical companies to pursue them in cases where the population affected by the treated condition is not large enough. The cost of drug development must drop, and Koller joined others in believing that data was the key.

These pharmaceutical companies have amassed enormous databases from human testing of drug candidates and other processes, but have been unable to effectively leverage them. Insitro aims to change that.

“We’re now at a moment in history where a confluence of technologies emerged all at around the same time to allow really large and interesting and disease-relevant data sets to be produced in biology,” said Koller at a talk hosted by TechCrunch’s Connie Loizos last year.

“In parallel, we see on the machine learning side… technologies that are able to make sense of that data and come up with novel insights that can hopefully cure disease. We’re in the business of actually building data for the sole purpose of training machine learning models… what we think of as little crystal balls that would allow you to avoid doing experiments that are complex or even impossible.”

The resulting combination of “in vitro” (i.e. in the lab) and “in silico” (in computer) techniques they call insitro — not good latin, but nevertheless perhaps the new reigning paradigm in this field.

With a number of partnerships and studies ongoing and a staggering $143M Series B raised just this May, Insitro is going strong and Koller will no doubt have a lot to say about it at our all-online Disrupt SF 2020.

We hope you can join us at Disrupt online this September 14-18. Get a front-row seat with your Digital Pro Pass for just $245 or with a Digital Startup Alley Exhibitor Package. Prices increase today, so grab your tickets today!

Things haven’t exactly been smooth sailing for Huawei in recent years. The company’s rapid trajectory has been disrupted by on-going battles with the U.S. government that have, among other things, blocked its access to Google apps and services. But a new report from Canalys paints a reasonably rosy picture as the hardware giant overtook Samsung to snag the top spot in global smartphone shipments for the second quarter of 2020.

The news is a milestone for a number of reasons, not the least of which is the fact that this is first time in nine years that neither Apple nor Samsung has been at the top of Canalys’ charts. Huawei’s figures were almost exclusively boosted by sales in its native China, which currently comprises more than 70% of its total figure.

Image Credits: Canalys

It’s important to note here, however, the fact that the company took the top spot by essentially shrinking at a less rapid rate than Samsung. Huawei’s overall figures are down 5% year-over-year. But that figure pales in comparison to Samsung’s 30% drop. The two Goliaths are currently at 55.8 million and 53.7 million, respectively.

Things were bad for the smartphone industry prior to COVID-19, but the pandemic certainly hasn’t helped overall, as people are less inclined toward shelling out hundreds to north of $1,000 for inessential upgrades. And, indeed, Huawei’s numbers dropped by 27% outside of China, but the overall slide was dampened by an 8% growth in China. Samsung, meanwhile, currently controls less than 1% of the Chinese market.

As for what this all means for the future, it seems that it may be difficult for Huawei to maintain its top spot. “Its major channel partners in key regions, such as Europe, are increasingly wary of ranging Huawei devices, taking on fewer models, and bringing in new brands to reduce risk” Canalys’ Mo Jia said of the report. “Strength in China alone will not be enough to sustain Huawei at the top once the global economy starts to recover.”

You’ve probably seen them on highway billboards and your Instagram feeds: startups promising to get it right on racial and gender inequity when it comes to employee pay. But how much progress has actually been made? Are companies even aware that upcoming stock option grants might worsen the very problem they claim to be fixing?

Last week, a top female executive at well-known equity management platform Carta resigned, alleging hypocrisy in the company’s public advertisements for equity compensation — or the now infamous statement by their CEO “Fair equity should be table stakes” — and their actual stance on correcting these wrongs within the company. This top executive was Emily Kramer, the very Harvard MBA brought on board in part to help improve stock option inequity at Carta and within its thousands of company users. These developments left me wondering what more can be done by leaders in equity management to help ameliorate these issues before they get harder to solve.

Anyone who’s worked closely to venture capital and tech in America knows that stock options are a key lever of attracting top talent, especially for companies with risky business models and low odds of success. Yet, equity compensation has received much less attention than cash pay. Further, this “paper wealth” can be invaluable to women and persons of color as the country attempts to attack its shameful income inequality. If you’ve had the opportunity to work with Carta, then you also know that gender and racial inequity in compensation exists with stock options too, not just cash.

Carta must act swiftly to implement a new feature across its entire platform: an alert to startup founders and legal administrators that upcoming option grants result in gender and racial inequity, when compared with the rest of the company’s employees doing similar work. Backed by the precept of “equal work, equal pay,” Carta has a unique opportunity to use its near informational monopoly to ameliorate “equity inequity” and make good on unkept promises. This feature ensures internal parity: that women and persons of color are compensated by equity grants on par with white and/or male colleagues performing the same work, in similar positions.

Having input equity compensation into Carta myself as a startup attorney, there’s no way I could have known if new grants were equitable across the capitalization table, unless Carta sent an alert or the company circulated its own report. The sad reality is that it’s way too challenging to independently perform this review on your own. Carta can because it’s a clearinghouse for equity compensation, used by more than 14,000 companies across the marketplace, with unique access to the tools and information required to know if a company’s astray from its stated values.

Wouldn’t it be helpful if Carta notified a client’s management team and lawyers that new grants didn’t achieve gender and racial equity while they still had a chance to adjust the numbers, before board grants? According to Carta’s own 2019 gender equity gap study published following a review of a sample of their own users’ capitalization tables, male founders represented 6.5% of equity holders but own 64% of all equity. Further, at the employee level, female employees own 49 cents in equity for every dollar men own. If companies affirmatively understood the gravity of their actions, the state of paper wealth in the United States would be far more equitable and inclusive.

I’d imagine social justice-minded companies would be happy to make adjustments to stock grants when it was easiest, not after the fact. After all, once options are granted by the board, it becomes an administrative hassle to redo. Yes, many companies do internal audits afterwards, uncovering inequities — but it’s usually too late or burdensome to make all of these employees whole, some of whom might have already departed. Let’s not forget that startups generally can’t even grant options to individuals no longer providing services to their company. A proactive, preemptive approach is not only reasonable, but required. Carta’s well-placed to make up for its broken promises by nudging users to get it right the first time.

Remember, later-stage companies have the money to perform comprehensive equity pay analysis, but early-stage companies often don’t. It’s at formation when inequities are easiest and cheapest to tackle, particularly for the promising early-stage, future unicorns that Carta spends so much time attracting in its successful Launch program — one that offers discounted services to retain startups as they grow. Attorneys, board members, startup operators — heck, even the most junior staff — need to be unafraid in using Carta as a tool to help bring these issues to light.

I want to believe that companies that promise racial and gender equity in compensation make it happen, but not all do. Some don’t care. But others are just overloaded with pitch decks, Slack notifications and the immense expectations of investors searching for big returns. It’s not an excuse, just a reality. What a difference it would make if Carta let management know of the problem before it was too widespread to fix.

PayPal has struck a deal with CVS Pharmacy to offer the ability to check out using PayPal’s payment services, including both PayPal and Venmo, at the register. The company announced this morning CVS will become the first nationwide retailer to allow customer to pay using either their PayPal or Venmo QR code at the register without fees. The payment will pull from funds available in the customer’s existing account balance, bank account, or from their debit or credit card, just as it would online. Venmo users will additionally have the option to pay with their Venmo Rewards.

CVS has committed to rolling out the technology across 8,200 U.S. stores in the fourth quarter of 2020.

PayPal introduced its new QR Code technology for buyers and sellers in 28 markets around the world in May.

The company described the offering as a way to make it safer for buyers and sellers to transact in person amid the coronavirus pandemic. Instead of having to hand over a payment card to be swiped or read, buyers could complete a transaction by aiming their smartphone camera at a QR Code that was either printed out or presented on the seller’s screen, for a touch-free way to pay.

The CVS deal builds on that existing technology, but scales it to a large, nationwide retailer.

Image Credits: PayPal

The new CVS checkout experience is being made possible through PayPal’s partnership with payments technology provider InComm, which PayPal describes as the “the first of a multi-year agreement” between the two payment technology companies. The agreement allows InComm to distribute PayPal QR Code technology through its cloud-based software updates, which will make the checkout feature available to retailers directly on their point-of-sale terminals.

The nature of PayPal’s relationship with InComm hints at this being a larger deal than just a single retailer. However, PayPal hasn’t officially announced which other retailers are in the pipeline.

This is hardly the first time PayPal has tried to bring its payment technology to the register.

Its first brick-and-mortar integration was back in 2012 with Home Depot. Soon after, PayPal expanded to 15 more national retailers, including names like JC Penney, Office Depot, Rooms To Go, Foot Locker, Barnes & Noble, and others, through relationships with half a dozen point-of-sale terminal makers, and partnered with POS software firm AJB. It later rolled out even more partnerships, including those with iPad POS solution provider Revel Systems and hardware maker NCR.

PayPal also launched a program to encourage retailers to switch to PayPal services, in its battle with Square. More recently, PayPal bought iZettle, the “Square of Europe,” to claim its place at point-of-sale.

Despite its advances, PayPal still lost the lead in the in-person mobile payments space to Apple Pay. In November 2019, Apple said its Apple Pay transactions topped 3 billion in its fiscal Q3, surpassing PayPal. Overall, however, Paypal is still ahead of Apple Pay in the digital payments space, but analysts have warned that Apple Pay is one of the “long-term competitive threats” to PayPal’s business.

PayPal, in other words, has to find a stronger foothold at the register. And it sees the pandemic as an ideal time to tout its touch-free payment technology.

“We know that in the current environment, buying and selling goods in a health-conscious, safe and secure way is front of mind for many people around the world. As the coronavirus pandemic has evolved, we have seen a surge in demand for digital payments to transition to include new and safe solutions for in-person environments and situations,” said John Kunze, PayPal Senior Vice President of Branded Experiences, in a statement. “Our rollout of QR codes for buyers and sellers incorporates the safety, security and convenience of using PayPal in person and enables ongoing social distancing requirements and safety preferences for in-person commerce,” he added.

Apple has another antitrust charge on its plate. Messaging app Telegram has joined Spotify in filing a formal complaint against the iOS App Store in Europe — adding its voice to a growing number of developers willing to publicly rail against what they decry as Apple’s app “tax”.

A spokesperson for Telegram confirmed the complaint to TechCrunch, pointing us to this public Telegram post where founder, Pavel Durov, sets out seven reasons why he thinks iPhone users should be concerned about the company’s behavior.

These range from the contention that Apple’s 30% fee on app developers leads to higher prices for iPhone users; to censorship concerns, given Apple controls what’s allowed (and not allowed) on its store; to criticism of delays to app updates that flow from Apple’s app review process; to the claim that the app store structure is inherently hostile to user privacy, given that Apple gets full visibility of which apps users are downloading and engaging with.

This week Durov also published a blog post in which he takes aim at a number of “myths” he says Apple uses to try to justify the 30% app fee — such as a claim that iOS faces plenty of competition for developers; or that developers can choose not to develop for iOS and instead only publish apps for Android.

“Try to imagine Telegram or TikTok as Android-only apps and you will quickly understand why avoiding Apple is impossible,” he writes. “You can’t just exclude iPhone users. As for the iPhone users, the costs for consumers to switch from an iPhone to an Android is so high that it qualifies as a monopolistic lock-in” — citing a study done by Yale University to bolster that claim.

“Now that anti-monopoly investigations against Apple have started in the EU and the US, I expect Apple to double down on spreading such myths,” Durov adds. “We shouldn’t sit idly and let Apple’s lobbyists and PR agents do their thing. At the end of the day, it is up to us – consumers and creators – to defend our rights and to stop monopolists from stealing our money. They may think they have tricked us into a deadlock, because we’ve already bought a critical mass of their devices and created a critical mass of apps for them. But we shouldn’t be giving them a free ride any longer.”

The European Commission declined to comment on Telegram’s complaint.

We also reached out to Apple for comment but the company also declined to provide an on the record statement regarding Telegram’s complaint. A spokesperson did point to a piece of analyst research, from earlier this year, which found iOS had a marketshare of 15% vs Android’s 85%. They also flagged a separate analyst report, which looks at commission rates charged by app and digital content stores and marketplaces — suggesting this shows that rates charged for similar types of stores are generally also around 30%.

So the company’s overarching argument against ‘app tax’ complaints continues to be the claim that: A) Apple can’t have monopoly power, given its relatively small mobile OS marketshare (vs Android); and B) the App Store fee is fair because it’s basically the same as everyone else charges. (On the latter point it’s true Google also takes a 30% cut via the Play Store. However the Android platform lets users sideload apps; whereas, on iOS, users would have to jailbreak their device to get the same level of freedom to freely install apps of their choice).

Apple’s arguments are also now being actively looked into by EU regulators. Last month the Competition Commission announced it’s investigating Apple’s iOS store (and Apple Pay) — saying a preliminary probe of the store had identified concerns related to conditions and restrictions applied by the tech giant.

Specifically vis-a-vis the App Store, the Commission said it’s looking at Apple’s mandatory requirement that developers use its proprietary in-app purchase system, and at restrictions it applies on the ability of developers to inform iPhone and iPad users of alternative cheaper purchasing possibilities outside of the App Store.

The investigation by EU regulators is just the latest in a series of major big tech antitrust probes under the bloc’s current competition chief, Margrethe Vestager — who has also been digging into Amazon and Facebook business practices in recent years, as well as hitting Google with a series of record-breaking antitrust fines.

Over in the US, meanwhile, lawmakers are also actively grappling with competition concerns that have long been attached to a number of tech giants — and are being exacerbated by the pandemic concentrating platform power. Apple is one of the tech giants of concern, though not, seemingly, top of US lawmakers’ target list.

Yesterday, a hearing of the House Antitrust Subcommittee took testimony from four big tech CEOs: Amazon’s Jeff Bezos, Apple’s Tim Cook, Facebook’s Mark Zuckerberg and Google’s Sundar Pichai — with Pichai, Bezos and Zuckerberg getting the most questions from lawmakers.

Cook did face a number of questions around how the company operates the App Store, though — including about the commission it charges developers and a specific line of enquiry on why it had removed rival screen time apps. Asked whether Apple could ever raise its 30% take on app subscriptions Cook sought to sidestep the question, saying the fee had remained unchanged since the launch of the store.

He then followed up by arguing Apple faces huge competition for developers — citing alternatives platforms such as Windows and Xbox as also fiercely vying for developers, and likening the competition to attract developers as akin to “a street fight for market share”.

The contention from complainants like Spotify and Telegram is that Cook’s claim of Apple facing fierce competition for developers’ wares, from its position as the world’s second largest smartphone OS by marketshare, does not stand up to scrutiny. But it’ll be up to EU regulators to determine how to define the market for smartphone apps and, flowing from that, whether they identify harm or not.

Since The Exchange last checked in on the world of low- and no-code startup funding, several more interesting rounds in the niche have bubbled up.

This week, TechCrunch covered a startup called Hevo raising $8 million, and Paragon, which raised a $2.5 million seed round. Hevo is a “data pipeline startup” that helps “clients’ employees to integrate data from more than 150 different sources — including enterprise software from Salesforce and Oracle  without requiring a technical background, we reported.

Paragon, part of Y Combinator’s Winter 2020 batch, is a developer productivity-focused service that “makes it easier for non-technical people to be able to build out integrations using our visual workflow editor” according to its co-founder Brandon Foo. Paragon wants to “bring the benefits of low code to product and engineering teams and make it easier to build products without writing manual code for every single integration” to help “streamline the product development process,” Foo added.

And there are more rounds worth highlighting in the space since we last looked, like $4 million for Enduvo (no-code AR/VR), a $3.45 million extension for the fast-growing Turbo Systems (a no-code “engagement platform”), and a seed round for CloudWorx (no-code IoT), among others.

The trend that we noted last week that no-code and low-code startups are raising lots of capital is still hot.

But startups aren’t the only companies working in this space: Apple has long had a foot in the domain via its subsidiary Claris, which rebranded to that name last year after running under the FileMaker moniker. At the time, Claris CEO Brad Freitag told TechCrunch that his company’s vision was to make “powerful technology accessible to everyone.”

That wasn’t merely cliché: Claris’ best-known product, FileMaker, helps users build low-code apps, and its second product is called Connect, a service that helps users link APIs using low-code tooling.

Given that Claris has been in the no-code, low-code space for longer than most, TechCrunch caught up with Freitag again to chat about recent growth in the market category, what he thinks of the low-code terminology, and, of course, his take on startups in the niche.

The growth of no-code and low-code