Daily Tech Snippet: Monday, September 14

• High-profile busts signal caution in start-up investing, especially in on-demand B2C businesses: At the end of July, Homejoy, a start-up company that used the Web to offer house cleaning, hung up its mops, leaving customers in the lurch and Google Ventures and other top-tier private equity backers out the more than $35 million they had sunk into the company. Now, with public markets on a see-saw and venture capitalists thinking the turmoil may hit private markets, many investors are wondering if more Homejoys lie ahead. That is leading them to look extra hard at companies that hold similar characteristics to Homejoy: on-demand, logistics-heavy businesses that cater to consumers rather than businesses. "They are caught on a treadmill" because to keep running requires more cash infusions, though often without an accompanying move to profitability, said Venky Ganesan, a venture capitalist at Menlo Ventures. He said he looked at about a half dozen such companies in the spring and early summer, passing on all of them, only to see all raise money elsewhere. While the failure of one start-up might not seem like much, Homejoy's folding attracted outsized interest because it had already raised more than $35 million from high-caliber firms. Most start-ups fail, of course, but they generally do it at earlier stages and lower cost to their backers. Homejoy is one of at least four high-profile collapses or retrenchments so far in 2015, counting those that raised at least as much cash, also from top firms. In recent years, among consumer-oriented tech companies, just one or two such start-ups have failed each year. At the end of July, Homejoy, a start-up company that used the Web to offer house cleaning, hung up its mops, leaving customers in the lurch and Google Ventures and other top-tier private equity backers out the more than $35 million they had sunk into the company. Now, with public markets on a see-saw and venture capitalists thinking the turmoil may hit private markets, many investors are wondering if more Homejoys lie ahead. That is leading them to look extra hard at companies that hold similar characteristics to Homejoy: on-demand, logistics-heavy businesses that cater to consumers rather than businesses. "They are caught on a treadmill" because to keep running requires more cash infusions, though often without an accompanying move to profitability, said Venky Ganesan, a venture capitalist at Menlo Ventures. He said he looked at about a half dozen such companies in the spring and early summer, passing on all of them, only to see all raise money elsewhere. While the failure of one start-up might not seem like much, Homejoy's folding attracted outsized interest because it had already raised more than $35 million from high-caliber firms. Most start-ups fail, of course, but they generally do it at earlier stages and lower cost to their backers. Homejoy is one of at least four high-profile collapses or retrenchments so far in 2015, counting those that raised at least as much cash, also from top firms. In recent years, among consumer-oriented tech companies, just one or two such start-ups have failed each year.
  

• Partnership Boosts Users Over China’s Great Firewall: A partnership between an American start-up and a Chinese Internet behemoth has created a sort of fast lane to speed traffic across the border. In the process, the two companies are establishing a novel business model with implications for other American technology firms looking to do business in China’s politically sensitive tech industry. The partnership, signed in July 2014, is between CloudFlare, a security company based in San Francisco, and Baidu, China’s equivalent of Google. Using a mixture of CloudFlare’s web traffic technology and Baidu’s network of data centers in China, the two created a service that enables websites to load more quickly across China’s border. The service, called Yunjiasu, began operating in December. It has a unified network that makes foreign sites more easily accessible in China, and allows Chinese sites to run in destinations outside the country. At the heart of the arrangement is an unusual structure known as a virtual joint venture. Under that arrangement, CloudFlare does not actually operate in China. Instead, CloudFlare cooperates primarily from afar as Baidu runs the business in China. Baidu and CloudFlare’s virtual joint venture relies on a principle generally considered anathema to foreign companies looking to do business with China: trust. CloudFlare transferred its intellectual property that is used to manage and speed up Internet traffic to Baidu and works closely with its engineers to run that technology on Baidu’s network in China. The two share revenue from the service. For CloudFlare, a five-year-old company that manages Internet traffic for millions of websites and makes browsing quicker and more secure, the central question was whether to transfer its intellectual property and give up local control or to forgo the vast business opportunities in China. Outside of the high-profile sites that Beijing sees as a threat and blocks — like Facebook and Twitter — are a huge number of businesses that suffer under China’s network inefficiencies. Those are the customers the service is targeting. And since the fast-lane service began operating, CloudFlare and Baidu said they have registered 450,000 businesses that account for 57 billion page views per month. Customers can try the service free, though CloudFlare and Baidu added supplemental security features and greater control over web traffic last month, both of which must be paid for. Matthew Prince, CloudFlare’s chief executive, said transferring the company’s intellectual property to Baidu enabled a deeper trust and a partnership. He added that the intellectual property is not the most critical part of the company. “We had much less apprehension about sharing our code, because we don’t think there’s any line of code we write that’s so clever that gives us a sustained advantage,” Mr. Prince said. “That comes from the network itself.”  Still, to be safe, Baidu and CloudFlare worked out a contract that gives each company control over crucial elements and would inflict penalties if either partner withdrew. For example, Baidu controls customer information within China, but CloudFlare owns the web address through which the entire operation works.

• EBay Revamps Seller-Rating System in Appeal to Merchants: EBay is overhauling its ratings system so that sellers aren’t penalized for late shipments beyond their control or for routine returns and exchanges, seeking to boost sales as an independent company. While the online marketplace has long relied on a five-star rating system and commentaries that lets merchants and buyers grade each other on transactions, sellers have long complained that these also make them vulnerable to customer angst over minor issues that are unavoidable or easily resolved. EBay’s seller rankings can make or break the merchants selling everything from sweaters to smartphones, because they influence how prominently products appear in search results and the likelihood that shoppers will conduct business with them. EBay is stepping up efforts to keep its sellers happy, following its split in July from the PayPal Holdings Inc. transactions business. "Our relationship with our sellers needs to be improved," Jordan Sweetnam, EBay’s vice president of seller experience, said in an interview. "These are the biggest changes we’ve made in years." The new rating system is more simple and objective, according to Sweetnam. Sellers won’t be penalized for late deliveries as long as they get orders to couriers on time, while returns or exchanges won’t affect ratings if they’re resolved and the customer is satisfied with the process.

• Lyft automatically opts you into receiving robocalls. That doesn’t sit well with the FCC. Lyft and First National Bank are on notice for violating federal telemarketing rules, regulators said Friday. The two companies allegedly required that their customers accept robocalls and automatic text messages as a condition of using their services — a no-no under the Federal Communications Commission's regulations. The rules are meant to prevent companies from coercing customers into consenting to robocalls. Although Lyft allows users to opt out of robocalls, doing so bars consumers from using the ridesharing service, the FCC said. If the two companies don't change their behavior, that could lead to more than a warning — fines or other legal action.

• Trillenium takes virtual reality into online shopping: Trillenium, a start-up that creates virtual stores for brands aimed at marrying the experience of real-life shopping with the convenience of e-commerce on smartphones and computers. Shoppers can tour the virtual store by focusing their gaze on products, browse items from different angles and socialize with friends online, bringing to life an e-commerce industry currently dominated by search boxes and static pictures. "The current dot.com experience is pretty sterile. So if they can improve the experience, you might dwell a bit longer, spend a bit longer online exploring products because you can get closer to them, and buy more," said Dave Evans, commercial director at Kantar Retail Virtual Reality, which uses virtual reality technology to help retailers develop real-world stores. Trillenium hopes to capitalize on the release of virtual reality headsets next year aimed at the consumer market, such as Facebook's Occulus Rift and Google's Cardboard. Trillenium has raised 335,000 pounds so far from Seedrs as well as two business angel investors. It hopes to raise an additional 1.8 million pounds in separate funds from venture capitalists. In three years, Prpic hopes to launch a multiple platform service where clients can use his technology to build and customize their own stores from a template.

• Jet.com: Taking Off, Full Throttle. Respected seller blog ChannelAdvisor reports - "Jet has gained altitude so rapidly that it’s currently our number 4 marketplace by GMV, out of the marketplaces we support worldwide. That means that just a month after its public debut, it’s already bigger for ChannelAdvisor than incumbents like Sears, Best Buy, Newegg, Tesco and Rakuten — marketplaces that have been operating for years (check out the growth of these marketplaces here). It’s not out of the realm of possibility that in 2016 it will be our number 3 marketplace, after Amazon and eBay. That would be remarkable. Just a few weeks after officially launching, the average Jet seller GMV is twice that of seller GMV on Sears or Newegg. Our sellers have seen tens of thousands unique consumers buying on Jet since its public launch, and a 23% repeat buyer rate. Over the same time period, eBay had a 17% repeat buyer rate and Amazon had a 11% repeat buyer rate. This indicates early shoppers on Jet find the values compelling enough to come back more frequently than on eBay and Amazon, although our sample size is still small."