Daily Tech Snippet: Friday, March 13

• Cash burns fast for Uber-like startups that grow city by city - "You have an operations team that is on a city-by-city basis, but you make sure your engineering team is not city-by-city" : The list of city-by-city startups includes mobile car-booking companies Uber Technologies and Lyft, food delivery startup Munchery, parking provider SpotHero, shopping service Instacart and laundry startup Washio. While they rely on technology to deliver new products and services, their business models are a departure from the low-cost ventures built by a few programmers working in a cramped office. Instead, they're setting up kitchens, renting warehouses and hiring local staff. Among the startups that raised a third financing round in 2013 or 2014, 14 are expanding from city to city and have attracted an average of $65 million in funding, more than double the amount raised by the rest, according to PitchBook Data, a financial information provider. Uber is leading the pack, with a presence in almost 300 cities in 55 countries. Valued at $40 billion, the mobile car-hailing startup is on a hiring spree for operations staff, with more than 200 job postings for staff outside of the company's headquarters in San Francisco, from Miami to Moscow. CEO Travis Kalanick's steady ramp-up has required Uber to raise an enormous amount of cash totaling more than $5 billion. In January, Bloomberg News reported the car-booking startup raised $1.6 billion in convertible debt, and that it was still on the lookout to collect more financing. Some investors warn that cash-intensive startups are at risk of flopping, pointing to previous attempts by delivery companies Kozmo.com and Webvan, which also sought to expand city to city in the late 1990s, only to crash when the dot-com bubble burst in the new millennium. Marc Andreessen, Silicon Valley investor and startup veteran, cautioned last year that enterprises rapidly burning cash may be unable to survive in an adverse environment.1 Apoorva Mehta, Instacart's CEO, is betting his delivery startup will be nimble enough to avert a crunch. The San Francisco-based company, which raised $220 million at a $2 billion valuation in January, initially sold groceries to customers with a markup. Now, Instacart is more focused on cutting deals with food stores to deliver produce and other goods for a fee. Instacart needs less cash to expand (compared with Amazon, which also delivers groceries in some urban areas) since it doesn't have to build warehouses or large stores. "You have an operations team that is on a city-by-city basis, but you make sure your engineering team is not city-by-city," Mehta said.

• Alibaba hiring in Amazon, Microsoft backyard as U.S. cloud unit expands: Alibaba has begun hunting staff in Seattle, home turf of Amazon.com Inc and Microsoft Corp, focusing on savvy cloud computing hires as it ramps up U.S. operations. Several recruiters in the region said they had registered the firm's hiring drive, suggesting Alibaba is eyeing staff at rival Amazon as well as Microsoft and Facebook Inc. According to LinkedIn's data, Alibaba has already hired staff away from Microsoft and Amazon. LinkedIn data list Microsoft as the top company from which former employees have joined Alibaba, not specifying the location of the hires, with 20 recruits for unspecified posts at the Chinese company having previously worked at the software giant. With the job openings Alibaba joins the increasingly fierce fight for cloud computing talent in Silicon Valley and Seattle, where it opened a research and development center in what is Microsoft and Amazon's backyard late last year. The Chinese company's arrival on the tech job market is - for now - unlikely to pose a concern to major industry incumbents, who in past years have resorted to increasingly imaginative tactics to recruit scant human resources. Alibaba's moves in the region are at an early stage, and the amount of hiring still comparatively low, said recruiters. The company has fewer than 300 employees in the United States. But Alibaba is looking at Amazon, Microsoft and Facebook in the Seattle area for new blood, particularly developers, said Jerry Taylor, president of Executive Recruiters Inc in Bellevue, Washington. "I'm sure they're going to be web-based as well as mobile-type folks," he said. "They're trying to get a footprint in the United States. What better place to go than their direct competitor in Amazon?" An Alibaba spokesman declined to give details of recruitment. Alibaba's talent hunt coincides with a broader push in the United States this year to win over U.S. business, offering American retailers new ways to sell to China's vast and growing middle class. On March 4 it launched a cloud computing hub in Silicon Valley, its first outside of China. Alibaba has hired at least 10 software engineers or computing experts from either Microsoft or Amazon since July 2014, all but one based in the greater Seattle area, according to their LinkedIn profiles. Li Xiaolong, one of the 10 and a senior staff engineer at Alibaba, openly advertises for like-minded talent on his profile: "We are actively hiring talents in machine learning, data mining and distributed computing, as well as hardcore software engineers to improve the world's biggest e-commerce platform. The location can be Seattle, Silicon Valley, Beijing or Hangzhou."

• Brands Are Now Posting More to Instagram Than Facebook Photo app is marketers' new fave: Instagram is luring brands away from Facebook, according to a new report from research firm L2, which found that brands now post more content on the photo-sharing app. The reason? Brands know everything they post on the platform will appear in fans' feeds, the study says. But on Facebook, if brands don't pay to promote their posts, much of their content doesn't appear in followers' News Feeds. That trend is turning Instagram, which is owned by Facebook, into a growing marketing force. The report outlines how brands have been building their followings on the app, which recently topped 300 million monthly users. Facebook does not comment on Instagram's growth outside of official announcements. However, considering the Instagram audience was 100 million two years ago, that tripling of users approaches Facebook's biggest leaps. Facebook went from 100 million to 300 million in an even shorter time span. Another reason Instagram is a marketing darling at the moment is it's attracting younger users than Facebook, according to L2. While an estimated 3 million U.S. teens abandoned Facebook between 2011 and 2014, the same demographic now cites Instagram as "the most important" social network, the report says. UPDATE: The survey focused on 250 of the world's top brands, and Facebook counts more than 2 million advertisers. Here's a look at what else L2 and Olapic, the social marketing technology firm, found: Brands post an average of 9.3 times a week to Instagram, up from 7.5 posts a year ago. Facebook posts decreased, meanwhile, from 11.1 to 8.8 per week. Brand fan bases rose an average of 26 percent over the past year. Photos perform better than videos. Users engage with photos 1.03 percent of the time and with videos 0.79 percent of the time. Instagram's Hyperlapse app, which speeds up video into fast-motion action, has fallen out of favor with just 2.4 percent of brands using it since its August launch.

• F.C.C. Sets Net Neutrality Rules: The Federal Communications Commission on Thursday released extensive details of how it would regulate broadband Internet providers as a public utility, producing official wording that almost certainly sets the stage for extended legal fights. The release of the rules had been eagerly anticipated by advocates and lawmakers, as well as broadband and technology companies, since the agency approved new rules for Internet service two weeks ago. The details came in a 313-page document that included the new rules and the legal justifications for them. The rules revealed how the strict laws would be modified for Internet providers, exempting the companies from the sort of price controls typically applied to utilities, for example. But the full text of the new order also raised uncertainties about broad and subjective regulation. One catchall provision, requiring “just and reasonable” conduct, allows the F.C.C. to decide what is acceptable on a case-by-case basis. Opponents of the rules, including many of the leading Internet providers, spent Thursday poring over the document. It was not known who would file the first legal challenges, or exactly what legal arguments would be made. Many experts, though, said the document included plenty of opportunity for different interpretations. The “just and reasonable” provision, said Roger Entner, the lead analyst at Recon Analytics in Boston, “can be stretched like chewing gum.” He suggested that it would inspire a flood of proactive, permission-seeking petitions from businesses large and small. He pointed to mobile-messaging companies like Snapchat or WhatsApp that may be transmitting voice or video and seeking money from investors who want legal assurances before signing checks. “Before acting, you need to know: Is this kosher with the F.C.C.?” The debate about how to preserve the open Internet has persisted for more than a decade, and the F.C.C.’s new rules are not its first attempt to protect it. But the issue picked up momentum in the last year, with President Obama taking the unusual action of publicly urging the independent agency to approve strong regulation. The agency’s order reclassifies high-speed Internet as a telecommunications service rather than an information one, subjecting providers to regulation under Title II of the Communications Act. Its aim is to protect the open Internet, advancing principles of so-called net neutrality by prohibiting broadband providers from elevating one kind of content over another. “Threats to Internet openness remain today,” the agency wrote in the document released on Thursday. “The record reflects that broadband providers hold all the tools necessary to deceive consumers, degrade content or disfavor the content that they don’t like.” Comcast and Verizon, two leading Internet service providers, declined to comment. Jim Cicconi, AT&T’s senior executive vice president for external and legislative affairs, called the order’s publication the beginning of “a period of uncertainty” that the company was confident would be resolved “by bipartisan action by Congress or a future F.C.C., or by the courts.”

• Educational toy maker LeapFrog, once unique, is battered by the app disruption: Battered by a growing variety of cheaper alternatives, LeapFrog, a dominant maker of educational toys and games, has watched its sales plummet. It has become the target of short-sellers, investors who bet on a company’s failures, and was most recently sued by shareholders who claimed it had drastically overestimated consumer demand for its products. “As each year passes by and more apps are for free and they’re lower priced, it becomes a tougher sell,” said Jim Silver, the editor in chief of TTPM, a toy review website. Slow to adapt, critics say, LeapFrog has become something of a modern-day fable for how quickly technology has unseated the toy industry’s titans. Mike Wood, a lawyer, created the company upon realizing how few educational products existed for his 3-year-old son, who was having trouble learning to read. He founded the company in 1995, and in 1999 introduced the first LeapPad, an electronic book with audio and pen that helped children learn to read. As technology evolved, LeapFrog seized the opportunity to create a tablet just for children: no web-browsing abilities and a limited set of games. It introduced the original LeapPad tablet in 2011 for $100 at a time when the average tablet in the United States sold for about $470, according to data from Euromonitor. Sales skyrocketed. Sean McGowan, an analyst with Needham and Company, estimates that the company sold 1.2 million tablets the first year, and more than doubled that in 2012, when the LeapPad 2 came out. The hardware, combined with its software and content, most likely made up more than half of the company’s revenue, Mr. McGowan said. “Back then, not every family had an adult tablet they were willing to give to their child,” said Gerrick Johnson, an analyst with BMO Capital Markets. Just a few years later, however, the idea of a tablet that appeals precisely because it can do a limited set of tasks seems almost quaint. Older generations of iPads have become hand-me-downs from parents to children, while tablets get cheaper every year. Parents can program their grown-up devices with educational games, instead of buying a separate specialized system. Sales of various LeapPads to retailers began to plateau in 2013, according to Mr. McGowan, who estimates that they dropped more than 40 percent in 2014. On a weekday afternoon, Flora Bojadziev, a chef from Harlem, browsed through a Toys “R” Us in Manhattan. She was looking for educational toys for her 2 ½-year-old son, who plays with her iPad. But she balked at the idea of spending $130 on LeapFrog’s LeapPad Ultra XDi, an educational tablet for children, on sale in the aisle a few steps away. “With that money, I’ll buy him so many apps,” said Ms. Bojadziev, who is 33. That is precisely the problem for LeapFrog, which built a multimillion-dollar company on children’s devices before babies learned to swipe the screens of iPads.

• Intel cuts revenue forecast as desktop demand weakens - shares down 5%: Intel Corp (INTC.O) slashed nearly $1 billion from its first-quarter revenue forecast as small businesses put off upgrading their personal computers, sending the chipmaker's shares down more than 5 percent. Fewer companies than Intel had expected replaced desktop PCs running on outdated Microsoft operating systems, leading to weak demand for its chips. Intel also cited "challenging" macroeconomic and currency conditions, particularly in Europe. "The macro environment is not robust enough for people to upgrade their PCs the way they normally would," Topeka Capital Markets analyst Suji De Silva said. Intel said on Thursday that it expected first-quarter revenue of $12.8 billion, plus or minus $300 million - about 7 percent lower than its earlier forecast of $13.7 billion, plus or minus $500 million. Though dominant in the market for chips used in PCs, Intel has been slower than rivals such as Qualcomm Inc (QCOM.O) to adjust in recent years to the growing popularity of smartphones. When Microsoft Corp (MSFT.O) wound down support for its Windows XP operating system last April, Intel had expected a bounce in demand from small- and medium-sized businesses. But this has not happened. Businesses and consumers are taking an "if it ain't broke, don't fix it" attitude to their old PCs, Summit Research analyst Srini Sundararajan said. According to BlueFin Research Partners, 75 million-76 million PCs will be shipped worldwide in the first quarter, a decline of 8-9 percent from the preceding quarter. Intel, whose historic "Wintel" alliance with Microsoft once delivered breathtakingly high profit margins, has been trying to offset the impact of slower PC upgrades by making chips for devices such as "2-in-1s", which function as both laptop and tablet. Intel said the mid-point of its gross margin range would remain at 60 percent, plus or minus a couple of percentage points. Intel's shares were down 4.8 percent at $30.76 in late afternoon trading on the Nasdaq.