Freemium’s public moment

When Zoom filed its public S-1, the tech industry fawned over the company’s financial profile. Here was a company growing revenue over 100% that had somehow managed to be cash flow positive. Conventional wisdom among many Silicon Valley investors has recently been that profits and rapid growth are mutually exclusive.

Uber and other high-growth tech companies aspire to be the next Amazon, foregoing profits into the foreseeable future to establish a dominant market position. This land grab mentality has held sway with most of the SaaS businesses that go to market with a traditional enterprise sales force. In contrast, the recent crop of public freemium businesses show they can actually make money while sustaining attractive growth rates.

How can this flavor of enterprise software business run so much more efficiently than their traditional enterprise brethren? The answer heavily lies in their approach to sales and marketing. Despite similar growth rates, traditional enterprise SaaS businesses spend an average of 10% more of their revenue on sales and marketing than their freemium comparables.

A common criticism of freemium businesses is that their retention rates dramatically lag those of traditional enterprise software businesses. Customer relationships for freemium businesses usually begin online. An individual employee wants to use a product for her/his own productivity and simply charges a credit card to pay for a subscription. In contrast to larger-ticket enterprise relationships with multiple stakeholders that tend to renew at 90%+ annually, the retention profile of these individual users often resembles consumer subscription businesses — usually in the 60-80% range. When it comes time to renew the subscription a year later, the person may have changed jobs, changed credit cards or only used the product episodically.

It’s less well understood that many of these business models are evolving in real time as they leverage widespread individual adoption to establish broader enterprise customer relationships. When sales reps for freemium products call on enterprise buyers, they usually have hundreds, or even thousands, of their employees already using the product individually or in small teams.

Their products and brands are already widely known and loved, with power-users clamoring for broader internal support and acting as advocates in the sales process. This internal validation makes it much easier to convince an enterprise buyer that the product will deliver compelling value to end users. While some hands-on sales support is usually required to land a contract over $5,000, this job can be done by less-experienced and lower-cost sales reps. If you visit the offices of freemium businesses and ask to walk their sales floor, you’ll see a sea of millennials closing sizeable contracts over the phone.

Legacy enterprise players have historically successfully fended off competition from freemium businesses by accusing them of not being “enterprise-grade” technology. It can take years to build out robust security infrastructure, deep integration into other systems and administration and reporting capabilities, all of which are needed in the enterprise procurement process. This was a muscle that freemium businesses, whose product orientation was around end-user design rather than back-end infrastructure capabilities, needed to build. They also had to build sales motions to navigate the longer, complex sales cycles that come with six and seven-figure annual recurring revenue (ARR) deals.

However, the financial results of these public freemium companies show just how well this is now working, and there are many more private companies following their lead.

Freemium’s enterprise traction

Most public companies don’t report granular renewal rates for their larger enterprise relationships, but the unit economics of these businesses are incredibly compelling.

Lucid Software now has more than 3,000 enterprise customers, which generates more than 60% of the company’s revenue, up from just 350 and 15% when we invested in the company three years ago. The logo renewal rate for their 3,000+ enterprise customers is more than 95% and net revenue retention is more than 130% annually, because end user seat growth more than outstrips any customer losses.

At Spectrum Equity, we’re watching with interest as these early freemium leaders emerge as successful public companies and the broader industry better understands how these business models work. Since leading SurveyMonkey’s first financing more than 10 years ago, Spectrum has invested in Lucid Software, Bitly, Litmus and Prezi, which are all charting a similar course from freemium online through to the enterprise. A number of Spectrum’s content businesses, such as Lynda.com, Teachers Pay Teachers, Headspace, DataCamp, Offensive Security and Digital Marketing Institute, have also successfully built hybrid individual and enterprise distribution strategies.

We believe companies that create the most compelling end-user experiences will win over the long term, and this trend of the consumerization of enterprise technology has only just begun.

(Note from Spectrum Equity: The specific companies identified above may not represent all of Spectrum’s investments, and no assumptions should be made that any investments identified were or will be profitable. View the complete list of our portfolio companies.)

Apple Music surpasses 60 million subscribers

Today’s major Apple news may be the departure of its design guru Jony Ive, but the even as the company stomachs the executive loss, their software plows ahead. Today, in an interview with French news site Numerama, Apple honcho Eddy Cue revealed that the number of Apple Music subscribers has now climbed to 60 million.

The company seems to give updates every time it surpasses another additional 10 million subscribers, we last heard that they had crossed the 50 million mark back in April.

Now, the company’s music service is well past the halfway market in its mission to surpass Spotify which currently has 100 million subscribers.

Hans Zimmer is composing the sound for BMW’s electric vehicles

Hans Zimmer, the film score composer behind dozens of Hollywood movies including The Lion King and Inception, is shaping what the next generation of BMW electric vehicles sound like.

Zimmer and Renzo Vitale, an acoustic engineer and sound designer at the BMW Group, recently composed the sound for the BMW Vision M NEXT, the concept that had its world debut June 25.

BMW’s project with Zimmer ties into its new “BMW IconicSounds Electric” sound brand.

“We want to get BMW IconicSounds Electric in position for customers who value emotional sound. With BMW IconicSounds Electric they will be able to experience the joy of driving with all their senses”, Jens Thiemer, senior vice president of the BMW brand, said in a statement.

The pair composed the drive sounds and sound signs for the BMW Vision M NEXT together in Zimmer’s studios in London and Los Angeles. Watch the video below and listen for the wooshing sound that is produced as the vehicle accelerates. Sadly, it’s not the soundtrack of Inception playing on repeat.

The M NEXT will not be in your local BMW dealership any time soon. It’s a concept that should show where the automaker is headed in terms of tech and design.

But customers can expect the next generation of electric vehicles to come with special acoustics meant to mimic the feeling a driver might get when they’re behind an M5 or other BMW with an internal combustion engine.

The idea isn’t to make an electric car sound like an ICE vehicle. Instead, the sound is meant to match the power and speed of the electric vehicle.

It turns out that BMW has been working on artificially generated sound since at least 2009. Engineers wanted to increase awareness of the traditional quiet electric vehicles, which at the time include the MINI E test fleet.

Since the launch of the BMW i3, customers have been able to choose acoustic pedestrian protection as optional equipment. Legislation has required automakers to adopt acoustic pedestrian protection, a feature being rolled out as standard in all plug-in hybrids and all-electric vehicles from BMW. The aim in the development was to fulfill the warning function without disturbing pedestrians.

Pepsi is going to start putting its Aquafina water in aluminum cans

PepsiCo is planning to replace its plastic bottles of Aquafina with aluminum cans at locations around the U.S.

The move is part of a broader initiative from the company to reduce its plastic use as a consumer backlash against plastic use grows across the country. Microplastics, found in both air and water, block up the guts of animals and insects and can potentially have incredibly harmful consequences on ocean ecosystems.

The move could be calamitous for startups like Liquid Death, the direct to consumer retail startup pitching canned “tallboys” of water with a metal message and a veneer of environmental responsibility.

Aluminum is nearly 100% recyclable and has a better overall environmental footprint as a packaging material than plastic, according to some advocates.

For now, Pepsi’s canned water will only be available at food vendors who stock its products, but the company is considering a broader transition to aluminum cans across its supply chain.

The company also announced that its LIFEWTR brand would only be sold in 100% recycled polyethylene terephthalate and its bubly product will no longer be packaged in plastic.

The changes, which the company said will go into effect next year, will eliminate 8,000 metric tons of virgin plastic and roughly 11,000 metric tons of greenhouse gas emissions.

Pepsi has set a goal of using nothing but recyclable, compostable or biodegradable packaging by 2025, the company said.

“As one of the world’s leading food and beverage companies, we recognize the significant role PepsiCo can play in helping to change the way society makes, uses, and disposes of plastics,” said PepsiCo Chairman and CEO Ramon Laguarta, in a statement. “We are doing our part to address the issue head on by reducing, recycling and reinventing our packaging to make it more sustainable, and we won’t stop until we live in a world where plastics are renewed and reused.”

Deadspin A Scout’s Honor | The Slot Adam Scott and Mitch McConnell Are in a Fight Involving Parks an

Deadspin A Scout’s Honor | The Slot Adam Scott and Mitch McConnell Are in a Fight Involving Parks and Recreation GIFs and the Confederate Flag | Splinter Twitter Comes Up With a Very Weird Solution to the Problem Of Trump’s Tweets | The Grapevine If Chaka Khan Had Heard Kanye West’s Final Sample of Her Song, She Would’ve Said ‘Hell No’ | News QAnon conspiracy nuts are finding clues in Adam Sandler’s Murder Mystery |

Police body-cam maker Axon says no to facial recognition, for now

Facial recognition is a controversial enough topic without bringing in everyday policing and the body cameras many (but not enough) officers wear these days. But Axon, which makes many of those cameras, solicited advice on the topic from and independent research board, and in accordance with its findings has opted not to use facial recognition for the time being.

The company, formerly known as Taser, established its “AI and Policing Technology Ethics Board” last year, and the group of 11 experts from a variety of fields just issued their first report, largely focused (by their own initiative) on the threat of facial recognition.

The advice they give is unequivocal: don’t use it — now or perhaps ever.

More specifically, their findings are as follows:

  • Facial recognition simply isn’t good enough right now for it to be used ethically.
  • Don’t talk about “accuracy,” talk about specific false negatives and positives, since those are more revealing and relevant.
  • Any facial recognition model that is used shouldn’t be overly customizable, or it will open up the possibility of abuse.
  • Any application of facial recognition should only be initiated with the consent and input of those it will affect.
  • Until there is strong evidence that these programs provide real benefits, there should be no discussion of use.
  • Facial recognition technologies do not exist, nor will they be used, in a political or ethical vacuum, so consider the real world when developing or deploying them.

The full report may be read here; there’s quite a bit of housekeeping and internal business, but the relevant part starts on page 24. Each of the above bullet points gets a couple pages of explanation and examples.

Axon, for its part, writes that it is quite in agreement: “The first board report provides us with thoughtful and actionable recommendations regarding face recognition technology that we, as a company, agree with… Consistent with the board’s recommendation, Axon will not be commercializing face matching products on our body cameras at this time.”

Not that they won’t be looking into it. The idea, I suppose, is that the technology will never be good enough to provide the desired benefits if no one is advancing the science that underpins it. The report doesn’t object except to advise the company that it adhere to the evolving best practices of the AI research community to make sure its work is free from biases and systematic flaws.

One interesting point that isn’t always brought up is the difference between face recognition and face matching. Although the former is the colloquial catch-all term for what we think of as being potentially invasive, biased, and so on, in the terminology here it is different from the latter.

Face recognition is just finding a face in the picture — this can be used by a smartphone to focus its camera or apply an effect, for instance. Face matching is taking the features of the detected face and comparing it to a database in order to match it to one on file — that could be to unlock your phone using Face ID, but it could also be the FBI comparing everyone entering an airport to the most wanted list.

Axon uses face recognition and to a lesser extent face matching to process the many, many hours of video that police departments full of body cams produce. When that video is needed as evidence, faces other than the people directly involved may need to be blurred out, and you can’t do that unless you know where the faces are and which is which.

That particular form of the technology seems benign in its current form, and no doubt there are plenty of other applications that it would be hard to disagree with. But as facial recognition techniques grow more mainstream it will be good to have advisory boards like this one keeping the companies that use them honest.

Why the 2020 U.S. Census Could Change Everything, According to an Expert [Updated]

Today, the Supreme Court blocked a crucial citizenship question from being added to the 2020 U.S. census—a question President Trump couldn’t help but chime in on.

“Seems totally ridiculous that our government, and indeed Country, cannot ask a basic question of Citizenship in a very expensive, detailed and important Census, in this case for 2020,” he tweeted. “I have asked the lawyers if they can delay the Census, no matter how long, until the United States Supreme Court is given additional information from which it can make a final and decisive decision on this very critical matter.”

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While the question remains blocked for now, we spoke to Terri Ann Lowenthal, the former staff director of the Subcommittee on Census and Population from 1987 to 1994, about the impact of this question and the greater significance of citizenship that might forever change our political landscape.

What exactly is the proposed change to the census?

It’s fairly simple: a question that asks participants whether they’re a citizen. This is one among several planned questions by the Census Bureau, including existing questions relating to age, sex, race, home ownership, and relationship status.

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“It was added in haste and without regard to the traditional process of determining questions,” Lowenthal said over the phone. “I think the decision to add the question, if it’s allowed to stand, really threatens the success of the 2020 census.”

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What’s so wrong with asking about citizenship status?

A lot of things: mainly that it has serious potential to discourage an estimated 6.5 million people from participating, thereby questioning the value of the census altogether. According to Lowenthal, skepticism of the Trump administration is the reason people might be discouraged to take part.

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“It’s not surprising that many people and especially immigrants, regardless of their legal status, probably don’t trust this administration to follow the law and that’s because of the president’s harsh immigration policies,” she said over the phone. “It’s understandable that many immigrants are fearful that this administration might circumvent the law and get its hands on census data and use it to harm people, or deport people or take away their benefits.”

Wait, so Trump doesn’t automatically have access to my census information?

No—at least not at this moment. According to Lowenthal, this information is kept private within the Census Bureau.

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“By law, the Census Bureau cannot share any personal census responses or information with any other agency of government at any level or court of law or administrative court or private entity for any purpose,” she said. “And further, no other government agency or court of law may use personal census data, were they somehow able to get their hands on it, to harm any individual—and that includes for law enforcement purposes of any kind.” Still, this wouldn’t be the first time Trump has allegedly skirted the law to his own benefit.

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Will this impact the 2020 election?

Not directly, no, but you’ll need some context. After the census, states use their new population numbers to re-draw congressional districts and determine the reapportionment of seats in Congress; in other words, seats can change as a result of a new count. As far as the 2020 election goes, this will not impact congressional seats.

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“We won’t even have the initial census numbers until sometime in late December 2020, after the election,” Lowenthal said. “The detailed numbers that are sent to the states for redistricting purposes, by law, must be sent to the states by one year after [the] census date, April 1, 2021.” That said, this will make a major difference come 2022 when the count is likely final and districts are re-drawn.

Okay cool, so I don’t have to worry about it then?

Well, yes, you do. A citizenship question might very well change everything we know about the political landscape as it stands. The New York Times reports that the absence of 6.5 million surveyed could significantly reduce Democratic representation by the loss of congressional seats and risk the loss of federal money in states like Arizona, California, Florida, Illinois, New York, and Texas.

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Worse, we’ll be stuck with it for a while with no apparent way out. “Once the census is finished and the numbers are published, we have to live with those numbers for the next decade.”

What happens next?

While the Supreme Court has blocked the question from being added to the census for now (and in a surprising 5-4 vote), this doesn’t mean it won’t appear on the census just yet. The Supreme Court has asked the Trump Administration to provide evidence for the question’s significance on the census and by June 30, when census materials will begin printing (though this deadline may not be final and could even be extended to October).

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Accordingly, Trump has reportedly asked lawyers to delay the census. For obvious reasons, this could create logistical issues with the census scheduled to go out in March. For now, we’ll have to wait and see how Trump manages to circumvent the actions of the Supreme Court.

This story was published on 4/23/19 and updated on 6/27/19 with new information following the Supreme Court’s ruling.

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NASA’s Dragonfly will fly across the surface of Titan, Saturn’s ocean moon

NASA has just announced its next big interplanetary mission: Dragonfly, which will deliver a Mars Rover-sized flying vehicle to the surface of Titan, a moon of Saturn with tantalizing life-supporting qualities. The craft will fly from place to place, sampling the delicious organic surface materials and sending high-resolution pictures back to Earth.

Dragonfly will launch in 2026, taking eight years to reach Titan and land (if all goes well) in 2034. So there will be plenty more updates after this one!

The craft will parachute through Titan’s hazy atmosphere and land among its dune-filled equatorial region. It’s equipped with drills and probes to investigate the surface, and of course cameras to capture interesting features and the surrounding alien landscape, flying from place to place using a set of rotors like a drone’s.

We’ve observed Titan from above via the Cassini mission, and we’ve even touched down on its surface briefly with the Huygens probe — which for all we know is still sitting there. But this will be a much more in-depth look at this fascinating moon.

Titan is a weird place. With rivers, oceans, and abundant organic materials on the surface, it’s very like Earth in some ways — but you wouldn’t want to live there. The rivers are liquid methane, for one thing, and if you’re familiar with methane, you’ll know that means it’s really cold there.

dragonfly gifNevertheless, Titan is still an interesting analogue to early Earth.

“We know that Titan has rich organic material, very complex organic material on the surface; there’s energy in the form of sunlight; and we know there’s been water on the surface in the past. These ingredients, that we know are necessary for the development life as we know it are sitting on the surface on Titan,” said principal investigator Elizabeth Turtle. “They’ve been doing chemistry experiments, basically, for hundreds of millions of years, and Dragonfly is designed to go pick up the results of those experiments.”

Don’t expect a flourishing race of methane-dwelling microbes, though. It’s more like going back in time to pre-life Earth to see what conditions may have resulted in the earliest complex self-replicating molecules: the origin of the origin of life, if you will.

dragonfly model

Principal investigator Elizabeth Turtle shows off a 1/4 scale model of the Dragonfly craft.

To do so Dragonfly, true to its name, will be flitting around the surface to collect data from many different locations. It may seem that something the size of a couch may have trouble lifting off, but as Turtle explained, it’s actually a lot easier to fly around Titan than to roll. With a far thicker atmosphere (mostly nitrogen, like ours) and a fraction of Earth’s gravity, it’ll be more like traveling through water than air.

That explains why its rotors are so small — for something that big on Earth, you’d need huge powerful rotors working full time. But even one of these little rotors can shift the craft if necessary (though they’ll want all eight for lift and redundancy).

We’ll learn more soon, no doubt. This is just the opening salvo from NASA on what will surely be years of further highlights, explanations, and updates on Dragonfly’s creation and launch.

“It’s remarkable to think of this rotorcraft flying miles and miles across the organic sand dunes of Saturn’s largest moon, exploring the processes that shape this extraordinary environment,” said NASA associate administrator for science Thomas Zurbuchen. “Titan is unlike any other place in the solar system, and Dragonfly is like no other mission.”

Jony Ive is leaving Apple to launch a new firm

The man who won over decades of Apple fans with iconic product design and his pronunciation of “aluminum” is out at the company. Sir Jonathan Paul “Jony” Ive told The Financial Times today that he’s leaving Apple after 27 years. 

Ive led a design team that created an army of consumer electronics’ most iconic devices, including the iPhone, iPod and various Mac models. The executive will begin transitioning away from the company at the end of 2019, launching a new project titled LoveFrom next year.

Ive says the firm’s name was inspired by late-Apple founder, Steve Jobs. Per the interview, “There was an employee meeting a number of years ago and Steve [Jobs] was talking . . . He [said] that one of the fundamental motivations was that when you make something with love and with care, even though you probably will never meet . . . the people that you’re making it for, and you’ll never shake their hand, by making something with care, you are expressing your gratitude to humanity, to the species.

Apple confirmed the move in a press release, noting that it will remain a client of his new design firm.

“Jony is a singular figure in the design world and his role in Apple’s revival cannot be overstated, from 1998’s groundbreaking iMac to the iPhone and the unprecedented ambition of Apple Park, where recently he has been putting so much of his energy and care,” said Tim Cook said in the release. “Apple will continue to benefit from Jony’s talents by working directly with him on exclusive projects, and through the ongoing work of the brilliant and passionate design team he has built. After so many years working closely together, I’m happy that our relationship continues to evolve and I look forward to working with Jony long into the future.”

Ive echoed the sentiment, telling the site, “While I will not be an [Apple] employee, I will still be very involved — I hope for many, many years to come. This just seems like a natural and gentle time to make this change.”

VP Industrial Design Evans Hankey and VP Human Interface Design Alan Dye, will be stepping up to take the reins from Ive, who joined the company full time in September 1992.

Before ascending to the role of Chief Design Officer, Ive made a name for himself at the company with the design of the PowerBook while still at the London-based design firm, Tangerine. In recent years, he had increasingly become one of Apple’s most prominent faces, regularly appearing in design videos for the company.

How to Know When Your Kid Is Ready to Stay Home Alone

Photo: 20th Century Fox

Staying home alone without your parents is a major childhood rite of passage; but during an age in which parents are afraid to even leave their kids in the car for a minute while they grab something from the store, figuring out when they’re ready can be a real challenge.

The law isn’t much help. According to the U.S. Children’s Bureau, only three states have laws stating a minimum age for children to be left home alone and they very widely—Maryland, eight years old; Oregon, 10 years old; and Illinois, 14 years old.

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If you happen to live in one of those states, I suppose that’s a good place to start. However, there are some other factors to think about before you head out the door.

Consider their maturity

When a child is old enough and responsible enough to be left home alone is less about age and more about maturity. Some nine-year-olds might be ready to hold down the fort while you run a quick errand while some 12-year-olds are not to be trusted, even for a second.

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You know your kid best, but the Children’s Bureau gives us a few points to consider:

  • Is your child physically and mentally able to care for themselves?
  • Does your child obey rules and make good decisions?
  • How does your child respond to unfamiliar or stressful situations?
  • Does your child feel comfortable or fearful about being home alone?

The circumstances will factor in, too. Will they have to make themselves a meal and if so, do they have the skills to do that safely? Is your neighborhood generally safe? Maybe your oldest is capable of staying home by herself but isn’t quite ready to care for younger siblings. All of these are considerations that will vary from family to family.

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Make sure they can communicate

They’ll need to be able to call you—or 911—in case of an emergency, if they have a question or they become scared for any reason. If you’ve got a landline, make sure they know where it is and how to use it. If you don’t and they don’t yet have their own cell phone, it might be time to get them an inexpensive “dumb phone,” which has limited features, for this purpose.

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Tablets and computers can also be used for communication, but make sure they have 911 capability and that your child knows how to utilize it.

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Get them prepped

Kids need some basic knowledge and skills before they’re ready to fly solo. The Children’s Bureau suggests enrolling them in a safety class, such as the American Red Cross’s babysitting training, to learn basic childcare and first aid skills. In addition, ask yourself these questions:

  • Does your family have a safety plan for emergencies? Can your child follow this plan?
  • Does your child know his or her full name, address, and phone number?
  • Does your child know where you are and how to contact you at all times?
  • Does your child know the full names and contact information of other trusted adults and know to call 911 in case of emergency?

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Review this information with your kid regularly and post it in an easily accessible spot in the home, such as the refrigerator, in case they need it in an emergency and become flustered.

Be clear about your expectations and rules for when you’re away, including the use of electronics and under what circumstances they’re allowed to answer the door, leave the home or have friends over.

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Start out slow

You’ll want to do a couple of “trial runs” with your kid before you let him fend for himself all day long. Leave for a short amount of time and stay close to home to see how things go. Call them to check in so they don’t feel completely disconnected.

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When you return, ask them how they felt or if anything unexpected came up. It’s important that they feel as comfortable and confident in their abilities as you do.


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