Daily Tech Snippet: Thursday, March 19

• As Microsoft comes to terms with the slow death of its OS business model...: The days of charging customers for an operating system are slowly coming to an end, piece by piece. Microsoft dismantled another piece of its old way of doing business on Wednesday. As part of a broader announcement of partnerships in China, the company said it would allow existing users of Windows personal computers in the country to upgrade free to Windows 10, its coming operating system. The offer is good not only for people who have paid for legitimate copies of Windows on their machines, but those that have pirated copies of the software. The near term effect on Microsoft’s sales is likely to be minimal. The overwhelming majority of Windows software in China is pirated. Only 1 out of every 10 copies of Microsoft’s software in the the country is legitimately purchased, the company’s former chief executive, Steve Ballmer, once said. Microsoft has little Windows licensing revenue in China to jeopardize by giving away free upgrades. But the move echoes a shift at Microsoft and the software industry’s around the world. This happened first in mobile, a market in which Microsoft has pitifully small market share and, in a variation of its situation in China, not a lot of revenue to lose. Last year it eliminated its licensing fee on Windows for manufacturers creating devices with screens smaller than 9 inches. Then in January, Microsoft said it would let people running the latest versions of Windows on their computers upgrade free to Windows 10. The company’s executives have downplayed the impact that these changes will have on its business model, and for the time being they are right. Most of Microsoft’s Windows revenue comes from sale of the software to PC manufacturers who put the software on their new machines, not to consumers who pay for Windows upgrades to existing machines. Corporate customers will stay need to pay Microsoft for long term agreements that keep their software up to date. How long can these remaining honeypots of Windows revenue last? Windows PCs are under growing pressure at the low end of the consumer PC market from Chromebooks, cheap laptops running a Google operating system, and tablets. To combat their growth, Microsoft last year was forced to cut its Windows licensing fees for laptops that sell for less than $250, which hurt its financial results. For its most recent fiscal year, which ended last June 30, Microsoft’s revenue from Windows for PCs was $16.9 billion, down from $17.6 billion the prior year. Al Hilwa, an analyst at IDC, the technology research firm, predicts that corporate customers will continue to pay Microsoft for long-term software agreements that include Windows. Still, he said, “there’s a slippery slope aspect” to the pricing changes happening to Windows in the consumer market. “Sooner or later, enterprises will say, ‘We don’t want to pay for it,'” he said. To make up for lost Windows licensing fees, Mr. Hilwa believes Microsoft will increasingly rely on revenue sources. In a nod to Apple, it will emphasize hardware devices that come coupled with software, like its Surface tablets. And in a nod to Google, it will seek to make money from advertising and other services on its devices.

• ...A big name tech investor makes big bets on startup-to-startup APIs: The best way to do business isn’t to build it all in-house. Top companies are increasingly piecing together a composite of APIs from specialized startups. That lets them concentrate on their unique value-add rather than reinventing the wheel. Now those building blocks are turning into big businesses of their own with unique challenges. How do they get traction for their APIs? What does it take to support a developer ecosystem? How much should they charge? Accel Partners thinks it can help. It’s learned from investments in Braintree, Segment.io, Slack, and Checkr. But Accel also knows it missed the boat on Twilio and Heroku. So to attract more API businesses and share its insights, Accel is announcing a new investment focus in what it calls “APX,” the API-ification of business. Developers are constantly posed with the question of whether to buy or build. You either pay for a specialized API or you spend the resources trying to replicate them. But as the cogs get more complex, and the talent wars rage on, in-house development keeps looking slower and more expensive. “You don’t need to go out and source the talent to build these functions,” Natarjan tells me. “You can outsource entire swatches of your company to very reliable APIs. It’s a bit of a talent arbitrage game.” Wong followed up, asking “Why would you go start your own payments capabilities, your own payment analytics, your own map capabilities when they’re so easily accessible from these other companies and are arguably better?” Take background checks, for example. On-demand and sharing economy startups like Instacart or Homejoy need to know the contractors they send to customers’ houses aren’t going to rob them. Normally, these companies would have to hire a team to compare potential hires’ identities against watch lists and criminal records. But their businesses are about grocery delivery and home cleaning, not background checks, so building a team or system to handle them would be a distraction. “With Checkr, that whole function has been reduced to an API,” Natarjan says. Instead of recreating something done better elsewhere, “You can dedicate 100% of your efforts to the 1% that is going to differentiate a product.” “APX is the current picks and shovels,” Accel Partner Rich Wong tells me, alluding to the success of merchants who sold mining tools during the gold rush.

• India Startup Action: Capillary Technologies in talks with Temasek to raise $80M: Capillary Technologies Pvt Ltd, a SaaS-based CRM solutions provider, is in talks to raise $80 million (Rs 501 crore) from Singapore’s state-owned investment firm Temasek, and a few other investors, sources privy to the development told Techcircle.in. Capillary was set up in August 2008 by IIT Kharagpur alumni Reddy, Krishna Mehra and Ajay Modani. It is into cloud-based software solutions that help retailers engage with customers through mobile, social and in-store channels. The firm claims that its integrated marketing platform helps retailers easily manage their customer data, gain insights and personalise engagement across multiple channels. The company caters primarily to the clients in the retail market, and as of July last year, 40 per cent of its revenues came from apparel, fashion and shoes; 30 per cent from food retail; 20 per cent from white goods and electronics and remaining 10 per cent from pharmacies and hypermarkets. During the same time, it claimed its platform was powering more than 150 brands across 10,000 retail locations. Its clients include Pizza Hut, Benetton, KFC, Puma, Marks & Spencer and Lacoste. In July 2014, Capillary had raised $14 million in its Series B round of funding led by existing investors Sequoia Capital and Norwest Venture Partners (NVP). This round came barely five months after the firm netted $4.5 million in funding from American Express Ventures. This was preceded by a $17 million in its Series A round of funding from Sequoia, NVP and Qualcomm Ventures in 2012.

• Uber’s Car-Hailing Service Banned in Germany, Court Says. A German court ordered Uber Technologies Inc. to stop its ride-hailing service in the country for profit, dealing a blow to the startup’s expansion plans outside the U.S. It is anti-competitive that Uber routes requests for rides via its UberPop application to drivers “that have no legitimation according to the Passenger Transportation Act, and hence the company is instigating to break the law,” the Frankfurt regional court said in a statement Wednesday. The verdict will affect Uber’s services in Frankfurt and Munich. In Dusseldorf, Berlin and Hamburg, the company has already changed its business model, cutting the fare it charges to as little as 35 euro cents (37 U.S. cents) per kilometer -- effectively turning UberPop into one of Germany’s many non-profit share-a-ride services -- to evade an earlier ban issued by local authorities. “This is a setback, in particular, for all those who want more of a choice when it comes to their personal mobility,” San Francisco-based Uber said in a statement. “It is also a setback for society as a whole, because for the time being most individual transport services will remain expensive and thus not be affordable for everyone.” Uber said it would probably file an appeal. Today’s ruling doesn’t affect its UberBlack limousine service and uberTAXI offers. “We will not give up on the German market,” it said.

• Yahoo Is Said to Cut 300 Jobs as Part of China Office Close: Yahoo is reportedly laying off 200 to 300 employees in China, shutting down its Beijing research center and pulling out what few operations it has left in the country, according to the Wall Street Journal. The Beijing office was Yahoo’s only physical presence in the country, consisting mainly of engineers working on research and development. They make up about 2 percent of Yahoo’s global staff. A string of layoffs since October have led to as many as 900 people searching for new employment, mostly countries outside the US like Bangalore, India, and Canada. A photo circulating on Chinese social media reportedly shows a slide show presentation at Yahoo’s office in Beijing, explaining to the employees the forthcoming agenda as they prepare to leave their jobs. It seems some employees would have the option of relocating to the US, while others receive a severance package equal to four months base salary plus the number of years employed multiplied by their average monthly income. Within hours of the announcement recruiters and HR departments at other tech companies were, as one source told Tech in Asia, "feeding on the leftover talent." The following screenshot is of a WeChat group of 340 headhunters and HR managers from a wide array of both large and small internet companies. The name of the group, in English, is "Yahoo recruitment group." WSJ reports the layoffs were driven by financial motives, and not related to censorship or government pressure. Yahoo’s China web domain now redirects to its Singapore site.

• Uxin, Platform for China's Used-Car Market, Raises $170 Million: An online auction house for used cars in China has attracted $170 million from big name investors including the search engine company Baidu, the private equity group K.K.R. and Coatue Management, a New York investment firm. Uxin, which operates used-car auction websites in China that focus on dealers and businesses, said Wednesday that it would use the funds to expand a new website and mobile app aiming at individual consumers. The company also provides inspections, quality guarantees and financing for the vehicles sold on its platforms. “Uxin hopes to use the strengths of its Internet technologies and experience in the used-car market to improve the efficiency of transactions, and to help dealers identify potential buyers with greater accuracy,” Chris Dai, the chief executive of the Chinese company, said in a statement. China is the world’s biggest market for new car sales, but the market for used cars is still comparatively small. Many Chinese are first-time car buyers and see owning a new vehicle as a status symbol. The country’s used-car market has traditionally been highly fragmented and lacking information on the service and repair history of the vehicles being sold. But things appear to be changing rapidly. Transactions in China’s used-car market rose 26 percent in 2014 from a year earlier, to 368 billion renminbi, or about $60 billion. The number of used cars changing hands rose 16 percent to about six million vehicles in the same period, according to figures from the China Automobile Dealers Association cited by Uxin. Online sales and auctions of used cars accounted for a small segment of the market, but they have the advantage of connecting buyers and sellers in different cities or provinces. Uxin said it handled more than 150,000 online and offline car auction transactions a year. The terms of the shareholdings were not disclosed, but for Baidu, China’s biggest online search engine company, investing in Uxin gives it a new market where it can leverage its vast stores of data and large user base. For K.K.R., the deal is the latest by its China Growth Fund, which last summer invested about $400 million in a chicken breeder in Fujian Province in southeastern China.