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John Borthwick Chief Executive Officer

John@betaworks.com @borthwick

January 21, 2013

I. Introduction Its been five years since we started betaworks; a lot has changed in those five years. This annual shareholder letter is an opportunity for me to pull myself out of the fog of day-to-day operations and think broadly about what we are building at betaworks, what has changed in the past year, and what changes we think will emerge in the coming year. And, given that this is our five-year mark, I thought it would be appropriate to thread in some thoughts about where we think things will be five years hence. We also thought you might be curious about what were doing with your money. This letter is divided into sections. In this, the introduction, Ill briefly revisit the first five years of betaworks and address in broad terms where were headed. In the second section, I highlight three major business trends: increasing focus on monetization and mobile platforms; the battle among the major platforms; and the impact of new methods of funding seed-stage companies. The third section is a discussion of major technological trends that are creating opportunities for betaworks, notably the rise of the contextual internet and the advent of new methods for telling stories online. Section four returns to betaworks, providing some examples of how we work. A. Looking back: the social shift and the betaworks model At the risk of stating the obvious, it is remarkable how dramatically things have changed in the past five years. Most notably, the social shift that we anticipated 1 has taken place. Social discovery has become a fundamental part of how people use and experience the Internet. We at betaworks have built and invested in a number of companies that have defined this new online environment. On the build side, our early years centered on creating tools to measure and track the social web. We created several of the pickaxes and blue jeans of the business. In last years shareholder letter, I wrote at length about how and why we developed those companies, so I
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E.g., Future of News (May 6, 2008); Summize and Twitter (June 11, 2008); Summize acquired by Twitter (July 15, 2008); Creative destruction... Google slayed by the Notificator? (February 5, 2009); Distribution now (May 13, 2009).

won't repeat that here. These companies enterprise-facing services and tools have all continued to grow; indeed, 2012 saw each solidify its lead in its respective market. At this point, they have all been spun out of betaworks, collectively raising about $35 million of new capital in 2012 to scale their businesses. These businesses are now positioned to scale aggressively in 2013. Around eighteen months ago, our focus shifted to user-facing services and media for the social web, mostly driven by data. These shifts have marked a new stage in the long-term evolution of betaworks from where we began a hit-driven start-up factory to what we dreamed to become a data-driven media company capable of building and compounding value over time. Our approach is to build, buy, and invest around our thesis, as we run betaworks as a network. The majority of our time and our capital is spent on the companies we create, launch, iterate, and operate. Seed investing reinforces our core focus: over the past five years, we have made almost 100 seed-stage investments, extending an ecosystem of founders and companies that share our vision for the future of the real-time social internet. By design, this mix of active construction, occasional acquisition, and arms-length investing is unusual, as is our network structure, but we have made it work, and work well. The life cycle of products and businesses is changing dramatically, becoming shorter and faster. There is less stability, more beta. We are makers, product builders, creating betaworks for this future. Our formula appears to be sufficiently potent that the betaworks holding company model has emerged as a recognized new asset class. We think the betaworks model is getting recognition not only for its ability to capitalize on the big, disruptive opportunities emerging from real-time, social, mobile, data, contextual computing, and so forth, but also for its disruptive effects on the incumbent players in the building and financing of innovative start-ups. Throughout 2012, we encountered other builders adopting and adapting the betaworks model for other verticals and regions. In many senses, betaworks is no longer alone. B. Looking ahead: the monetization shift Contrary to some conventional assessments, we see the pace of change accelerating. The world in January 2013 looks very different even from January 2012. Most notably, we see a marked shift to monetization, driven fairly or not by perceptions forged in the Facebook IPO. As a result, we are now in a different phase of the development of the social Internet. To the users, the story of 2013 will be about the relentless integration of social into how we live, play, govern and work. To the builders, the story of 2013 will be about the construction of new, revenue-generating social businesses and about the transformation and transposition of existing businesses, those that make money elsewhere and otherwise, into this new, social world of data. For betaworks in particular, 2013 will see new emphasis on building, acquiring, and investing in platforms, services and tools that make brands and businesses more successful in the social arena. C. We are still in the early days of social, with a lot of invention to be done One day, we will look back at our current era of technology as quaint. In evolutionary terms, we are at the beginning of the Cambrian Explosion. The social transition we bet on five years ago is

still gathering force, upending how people interact, discover, read, publish, create media, do customer service, and run their businesses. As new devices and interfaces re-configure how people create, share, and buy things, we are able to build on social and mobile infrastructure layers of such openness and reliability that we can launch, iterate and scale new products faster than ever. Some of the large incumbent platforms and businesses will adapt and prosper. Others wont. Incumbent collapses will happen far faster than people expect. In a networked world, the global mesh of interdependencies produces change at a pace we are not yet accustomed to. If it feels like we already live in a world of overwhelming information and overabundant connectivity, consider that the vast majority of the planets population still lacks access to the Internet, while the bulk of the worlds information still resides offline. By 2018 neither of those statements will be true. Today, six billion cell phone subscriptions are spread across five billion of the earths seven billion people yet only two billion people are connected to the internet, which means three billion people have everything they need to connect to the internetexcept a suitable device. Within 18 months, there will be more than a billion people with smartphones and tablets. Within five years most peoples primary experience of computing will not be on desktops or laptops, but connected devices devices that we carry in our pockets and purses, devices that we wear and integrate into our bodies, devices that we embed in our homes and offices and cars, in our fields and factories and hospitals, our power grids and transportation networks, across our cities and towns. The generated data will be staggering in scope and potential utility, but only if we succeed in building, at scale, the platforms, tools, services, interfaces, and experiences that can make sense of it all. To humanize it, to make our lives better because of it. The need for invention especially around the social Internet and social media, around this emerging, distributed, social data set is vast. These are early days, and this is a time of opportunity unlike any we have seen. II. Business shifts were thinking about We saw significant shifts in the business landscape in 2012. Three broad trends strike us as particularly noteworthy: first, the shift in the emphasis from user engagement and growth to monetization, especially on mobile platforms; second, the growing tensions among, and weaknesses within, the big incumbent social platforms; and third, the growth in the number and diversity of seed-stage financing options. A. The shifts to monetization and mobile Monetization: The most significant public signal of change in consumer technology in 2012 was the Facebook IPO. There is fervent debate about the reasons underlying the subsequent decline in Facebooks stock price (which has since recovered impressively, of course), but the tech world drew one clear conclusion: despite a great product and astonishing user growth and engagement numbers, Facebook had yet to demonstrate that it could become a great business, and was therefore being punished by a skeptical market. What was missing? Analysts consistently pointed to Facebooks perceived weakness in two areas: monetization and mobile. While Facebook had a proven core product, it was seen to have a questionable distribution

model, an unproven business model, and little evidence of defensibility or durability in the face of ongoing market shifts, most importantly mobile. (Indeed, the recent recovery of Facebooks stock price has at least coincided with a series of announcements and reports around monetization, revenue, search, and mobile.) Facebooks post-IPO experience led consumer tech start-ups and their investors alike to conclude that growth and engagement were no longer sufficient to produce strong exit outcomes. Instead, consumer Internet companies realized the need to focus on monetization. And this shift has now rippled through the entire stack, all the way down to seed-stage companies. We think this new focus is a good thing for the ecosystem as a whole, as well as being good for Facebook itself. Monetization is no longer something you can think about once you have tons of users it is something to think about as soon as you have any users. A more forgiving, less skeptical approach to Facebook by the stock market could have produced another 2000-style Internet bubble. Had the market been willing to support a massive forward-looking valuation for Facebook based essentially on a faith in its eventual ability to to build a solid business in a mobile world, a raft of companies would have sprinted to go public behind them. Everyone would have rallied around those companies, in the hope that their company would also go public. Instead we face a different reality more demanding, more rigorous, but ultimately more sustainable. Much of the story of 2013, then, is going to be about the businesses well build around these amazing social experiences. Mobile: The most important consumer shift in 2012 was toward mobile usage. Though long anticipated, the shift has happened very quickly; the numbers are astounding. Android and iOS are each closing in on one billion cumulative devices activated. Asymco has generated a striking visual of that growth:

Outside the US, experience with desktop environments is the exception, not the rule, among all Internet users. Mobile data connectivity is headed toward global ubiquity, with encouraging trend lines in speed, latency, and reliability. Here too, the experience of Facebook is remarkable, and telling. In a brilliant bit of data sleuthing, Benedict Evans uncovered a way in which Facebook was publishing monthly active user totals for its smartphone apps, on a rolling daily basis through most of 2012. The numbers, as of September 2012, are eye-popping: Out of 1.07 billion total users, 470 million were users of its smartphone apps. Facebook had an additional (presumably overlapping) 45 million users of its iPad app. Platform-wise, Android accounted for 176 million app users (from 66 million a year before); and iPhone 140 million (from 91 million). RIM use was much smaller and not growing, while Nokia and Windows were barely noticeable. 134 million were mobile web users.

Evans further estimates that, as of last September, Facebook had an iPhone installed base of 200 million, giving Facebook 70% penetration among iPhone owners. That means that 70% of iPhone users are logged in and sending data to Facebook every day. (The Android estimate is also interesting, but more rough, due to the 100 million or so Android devices in China, where Facebook is blocked. Evans finds that Facebook has around 40% penetration on the 450 million Android smartphones outside China). Putting the platforms together, Evans calculates that smartphone apps surged from 30% to 44% of all Facebook use in the year from September 2011 to September 2012. These shifts require profound changes to user experience and to the revenue model. As Evans puts it: [Facebook] is going through a massive, existential transition to mobile, changing the UX and the revenue model massively. Nothing is settled yet. The same can be said for the consumer Internet and social web generally. The next billion users to come onto the network will do so via mobile or tablet device. Take a look at Asymcos lovely animation of ITU market data on the adoption of fixed broadband vs. mobile cellular subscriptions over the last decade. The incredible pace of mobile uptake in China and India is the big story, with mobile data connectivity now following the same pattern. There absolutely will be a new rash of consumer businesses built for those mobile-only populations. B. Platform wars: things drive to the edge, the centre cannot hold In last years letter, I made the argument for a multi-network world a world where several social networks co-exist because their social architecture and use cases are different and independently compelling. That played out in 2012, as we saw vigorous growth in Facebook, LinkedIn, Twitter, Tumblr, Pinterest, and Instagram, to name the most prominent. All these platforms do something different, for different people, at different times. Indeed, some of the value of these platform now lies in the very fact of their separateness from each other Tumblr is important to many of its users precisely because it is a place to share and interact entirely separate and distinct from their Facebook and LinkedIn social graphs.

This year, Im going to make a different argument about platforms, and reiterate a core betaworks conviction. My argument is that these big, incumbent platforms are not as well positioned for the future as you might think. My conviction is that the open platforms will, over the long term, prevail over the closed.

Almost all of the platforms listed above have chosen to monetize through advertising. That, in turn, pushes these large platforms to control pixels, since invading visual real estate is how most people particularly brands and their agencies think about advertising. The result, and one of the big stories of 2013, is the rising tide of tension between what the users want to do on a platform and what that platforms owners want their users to do, in order to expose them to an adequate quantum of advertising. Platforms feel they have to impose controls to get users to do what the users dont want to do naturally. It is reasonable to expect that some of these platforms will overplay their hands, creating significant opportunities for new social networks to emerge. Most of these companies arent using advertising very effectively, and most dont devote the same level of attention to advertising product details that they bring to the core experience. The consequences will be farreaching. Users are ready, willing, and able to move. And, having attracted users rapidly in part by teaching them how rootless and transient their prior data-storage relationships can be, some of these companies will discover that it is all too easy to lose touch with and then lose entirely your users. We saw these dynamics play out in various platform wars, like that between Instagram and Twitter. An even more fun example one with broad and unexpected consequences, still very much in process is Apple vs. Google Maps. When Apple made the strategic decision to own mapping data in its new iOS 6.0, it made the mistake of launching with a significantly inferior product. Users screamed, Tim Cook apologized. Hilarity ensued. And then Google launched its iOS Maps app, a huge improvement. Users rejoiced and hit the Install button.

Along with the better map and direction features, though, Google Maps for iOS integrates authentication Google account sign-in into the app. While Apple is scrambling to assemble the necessary third-party data contracts or even acquisitions to make its mapping products competitive, Google has gained and is growing a sizeable foothold on the iOS platform that it had previously lacked a huge win even if only 10% of Google Maps users sign in. Apples goal of data independence seems unlikely in the near term. Beyond Maps, Google has done a stupendous job of developing first-rate iOS products in 2012; it now has a suite of products that not only replace the standard Apple apps, but also migrate the user seamlessly and automatically to a cloud-based storage and computing environment that effectively commoditizes the underlying iOS environment. So should we anticipate victory for the Google platform? No way. While Google has made significant headway on iOS and in the development of a coherent and unified interface, it didn't make meaningful progress in social in 2012. Google exhibited a gene for design and interface that many didnt think it had, while it yet strives to find a social one, social isn't just about access to social data. In contrast, Google has a powerful data gene that Apple still lacks indeed, its much more enlightening to think of Google not as a search company, but as a data company. And we are living in a world of shared data and shared platforms. Understanding how to build both within and across these platforms is the future. On our globally interconnected digital network, islands are temporary phenomena, easy, bounded and controllable; but the world we have built is multi-platform, codependent, and more complicated, and it is one in which users have more and more control. This letter is not the place to re-litigate one of the longest-running arguments about the Internet namely, whether open or closed platforms will ultimately prevail. I will simply note that it is a core betaworks conviction that open systems will prove more compelling, more resilient and more valuable to users than closed. Or to say it perhaps a bit more precisely: In a multiplatform world where open and closed systems will always co-exist, the force and power of openness will ensure the existence of a viable ecosystem for application and service builders like betaworks. The tension that exists between these companies isnt bad; the world is formed by tension. The implications, however, are quite interesting. The platforms are typically trying to control and centralize experiences with the opposing tension being the pull of their users at the edge. As billions more users join these networks over the next few years, the pull of the edge will get even stronger. That pull will make centralized architecture models hard, if not impossible, to execute against. There will be exceptions, but the islands wont prosper like the oceans. Prosperity comes from connectivity. Consider the effects of free trade in the global economy since the 1840s; there is a strong parallel to the data economy. In the short term, the big, centralized platforms will adapt to this economic logic by taking the easier paths of collaboration and acquisition. (Note that Facebooks Instagram acquisition started as a discussion about sharing APIs and data.) In the longer run, the pull of edge data and connectivity will force these companies to open or die prematurely. Accordingly, companies betting that their markets have settled, or that they control distribution, have declared victory prematurely. In our dynamic, networked system, these tensions are fundamental and no company can rest on its dominance. Netscape, AOL and Yahoo all learned this the hard way.

In January of 2012, an executive at Facebook told me that it would be the first company worth a trillion dollars. He said that Mark Zuckerberg and the team had the next five years figured out, though beyond five years they had some open questions. I pressed him on mobile, OS stacks, monetization, and other flanks that in my mind appeared vulnerable. A year later things don't look so clear. The market fully absorbed the mobile execution risk and the lack of clarity around monetization, and has even developed some enthusiasm for the company in recent weeks. At the same time, Facebook did a remarkable job of transforming itself into a mobile company. The lesson here isn't that Facebook was right all along, the lesson is that there is fundamentally a new dynamic at play: Value creation and destruction is happening at an unprecedented rate, and the value being created is increasingly being pulled to the edge. For example, Facebook last year looked vulnerable on mobile stacks; now, it looks to have transformed itself into a mobile company. As builders, we are seeking to master these new dynamics: we are building companies in a networked world, for a networked world, and on a network that is expanding at an exponential rate. The companies and incumbents that adopt a hacker culture, adapting and building fast, embracing openness and co-dependence, will thrive. Others will struggle to figure out where to go next. C. Seed stage growth Over the past few months there has been a lot of talk about a Series A crunch, suggesting a pullback in funding, in particular for consumer Internet companies. We take a contrarian view, seeing a Series A shift, not a crunch. The data suggests that the number of companies being funded at Series A has held steady; what has changed is the number of companies that were funded at seed stage. According to data gathered by CB Insights, 40% of seed stage companies are getting funded at Series A, on average 13 months after raising their seed round. That percentage will likely shrink as even more seed-stage funding platforms emerge, of course. The headline isn't that there is a crunch, but rather that the crunch is an effect of a market shift, and the market shift is vastly more interesting, and more important, than the crunch. Over the past five years, an increasingly diverse financing ecosystem has evolved to support seed-stage company creation, de-coupled from the traditional VC stack. The traditional source of seed-stage capital was individual angel investors. The world of individual angels has now been complemented by an entirely new set of options that include seed/start-up programs (Y Combinator, Techstars, Seedcamp), seed schools (General Assembly), crowdfunding platforms (Kickstarter, for product companies), hybrids (betaworks), more sophisticated angel platforms (AngelList), and immediate distribution and monetization platforms (mobile app stores).

The new funding stack What were witnessing is an evolution from a tightly-coupled VC stack to a more loosely-joined ecosystem. In some domains, this looser seed system folds right into the traditional VC stack. In others like mobile apps, games, micro-hardware it does not. For the companies that dont flow into the traditional VC stack, it is easier than ever to grow a company without resorting to a speculative Series A. As Jason Calacanis acidly, but accurately, pointed out, revenue of $2,750 / day will get almost any seed stage company past the point of break-even (and into the arms of eager VCs). Add together the existence of these new, loosely-joined seed financing platforms with the existence of reliable, low-cost social, content, and hosting platforms, and we can start to see a startup ecosystem that looks more than ever like high-frequency trading. Startups can be spun up and spun down rapidly. As recently as 12 months ago, few had even heard of Kickstarter, Rap Genius, Snapchat, Paper, or Clash of Clans. Last spring, OMGPOPs Draw Something was downloaded 50 million times within 50 days of its release. Instagram was acquired in April with 27 million users; by September, it had more than 100 million users. These numbers are truly astonishing; yet what they describe is increasingly common. Why and how is that happening? The social distribution infrastructure is now in place for massive, rapid adoption of new products. Its easier to start a company and build a product; when you hit you can hit very big, very fast; and you can monetize right from the start. Well also see companies die faster. From a financing perspective, the big change is that this phenomenon is no longer dependent on the traditional VC stack. Indeed, the traditional venture model will likely be further strained by these kinds of startup dynamics and rhythms. In our eyes, then, the Series A crunch is the effect of a more expansive and efficient marketplace for seed funding, not the symptom of a problem. Quite the contrary, there is now a more fertile seed layer of innovation. Indeed, the very independence of these diverse new investors contributes to the sustainability and efficiency of the emerging seed ecosystem. Of particular interest to us at betaworks is the expanding range of entities that are joining the marketplace and explicitly or implicitly adopting our hybrid investor/builder model for participating in seed-stage financing. We think betaworks is well-positioned to take advantage of these dynamics. Betaworks is both a company and a network. We get better financial results because we are connected like a network. We have the kind of information that is best gathered through a broad, loosely-joined, on-the-edge network. Our approach allows us to achieve a velocity that other parts of the seed and VC stacks find hard to achieve. Finally, betaworks has played a part in the emergence of

this larger, more diverse, more independent, and loosely-coupled seed financing marketplace; we believe its existence and growth tends to validate the betaworks model and its emergence as a new asset class. Putting these broad business shifts together, we draw four conclusions: a b The innovation cycle continues at full throttle, with a strong focus on monetization and mobile. Incumbent platforms are not as well-positioned as they may appear; the open platforms that embrace co-dependence will see increasing advantages over the closed. Seed stage funding will continue to fuel start-up activity at historically high levels, and new and less-coupled financing alternatives will flourish. Consumer-facing seed-stage companies will focus on monetization earlier.

c d

III. Technology trends we are thinking about Im typing this letter on a big-screen desktop. Next to it is a digital frame that cycles through the last 100 photos Ive posted anywhere online. At home this morning, I edited a few pages on my notebook computer. In a few minutes, Im going to walk to the subway, listening to RadioLab on my phone; my hope is that I wont receive a text from the Twine box that indicates alarming changes in room temperature at my place outside the city. Once aboard the 2 train, Im going to read todays Digg stories on a 7-inch Android tablet. Later this evening, Ill catch a movie on my iPad (my wife having hijacked the Roku), right after checking my Nike app that shows my physical activity for the day, and checking TweetDeck to catch up on activity from the people I follow and even from some objects and things I follow, like Tom Coatess house. As recently as 2010, the midpoint of the Obama presidency so far, my current day-to-day arsenal of connected devices would have sounded both a bit fantastical and absurd who needs two computers, two tablets, and a smartphone? Now its boring, even a cliche, to paint that picture. Connected devices are everywhere. Indeed, if there was any news at this years Consumer Electronics Show, it was simply that every device on offer every TV, refrigerator, thermostat, fork, teddy bear was Internet-connected. The proliferation of connected devices is no longer that interesting; whats interesting is how the rise of the contextual Internet, ambient data collection, connected devices, user navigation innovations, and competition for user attention on the stack are all accelerating and evolving in multiple ways simultaneously. A. Rise of the contextual Internet For more than 50 years science fiction has painted a future stuffed with computers that understand context. From HAL to the Cylons to the Enterprises sick bay, sci-fi computers are aware of the basic context in which they operate. Yet today, if you stand in New Yorks East Village, type a search into Google Maps, and you happened to be in another city the last time you opened your mapping app, it will initially default to your last known location. Every time you use it, the app has to run a bunch of often sluggish operations to figure out where you are; until

then, your search for Greenwich Street will probably produce directions to Greenwich Street in San Francisco. WTF #$%! Your phone isn't so smart about context today, but this is finally changing. Its a huge shift because its going to change how we will use our devices, the services available on them, and the nexus of navigation to those services. Remember Dory, the fish in Finding Nemo who remembered nothing? Or the old Start menu in Windows? Both were endlessly forgetful. The old Start menu remembered nothing about the previous state of its user. Quite the contrary, it placed that work on the user: Tell me where you want to go today, tell me where to start. And so every day you started over. Today, your phone is capable of understanding your state, location, and movement, and can collect and analyze ambient data where you have been, how often youve been there, how long you usually stay, what searches you have conducted when you are in this location. With that data, the phone can get really smart. Now extend contextual understanding to networked devices, small single-purpose devices Nike FuelBands, Fitbits, NODEs, Twine sensors and beyond to wearable devices like Google Glass, where the computing experience not only is integrated into our current context but actually mediates our experience. The whole world of how we use devices, the whole Start and search and navigate experience, is going to be redefined by a combination of contextual information, ambient data (e.g., usual activities in this location) and user-defined information and permissioning around state, opening up new ways for us to use and experience computing. In a talk at betaworks last year, Robert Scoble discussed contextual data and how and why latent or passive personalization works, noting that one size or one Start menu doesnt fit everyone. The world is on the cusp of a huge change as this contextual data layer emerges. There are several pieces to this emerging puzzle. Begin with data collection. Data is being gathered today via our phones and tablets; in 2012 we crossed an important threshold where improved battery management techniques, along with upgrades to the mobile OSs, made latent data collection viable for apps on mobile devices. Apps like Highlight can gather basic location data, manage state, and match them to social graph datasets to offer users features like Who is near me right now whom I might want to meet? Moving beyond our phones and tablets, data collection is set to explode with the proliferation of uni-purpose networked devices and latent data sensors. Cisco estimates there are 8.7 billion sensors and devices connected to the network today, growing to 25 billion by 2015. With some different assumptions and definitions, IBM estimates the latter number will be closer to a trillion. Regardless, it will be a big number. These devices will feed data into the network and directly to our mobile devices via Wi-Fi, Bluetooth and other wireless protocols, offering users, the devices and app developers vast new stores of data and insight beyond geolocation. There will be enough real time and historical data to be able to ascertain individual intent with some degree of confidence; yet this data will be uneven for a long time to come. Lets drop out of these abstractions to a few examples. Maps are an easy and useful starting point.

Maps today look online very much like they used to look when they were printed on paper. Yet the reality is that there is an entire world of depth behind almost every object on a digital map. Take a look at this image:

Its from a blog post last year outlining how these data layers are developed and managed by Google. You can see the satellite image but tiled on top of that you see the traffic flow, and key traffic signs. Its worth looking at this for a second and thinking about the data layer and how it adds a totally new dimension to the map. Take direction of traffic, for example. A single ping from a sensor or phone doesnt give any information about direction. Yet multiple pings let Google see the direction of a road, based on the sequential flow of traffic pings. These second-order, derivative data sets that emerge from large, dynamic datasets are fascinating. To be sure, the data sets arent even in quality or utility. The more densely integrated with active and latent sensors a space becomes, the richer it becomes in data. In many spaces, like cities, data depth is expanding at an exponential rate. The resulting possibilities are amazing. As Alexis Madrigal put it in his post:
It's probably better not to think of Google Maps as a thing like a paper map. Geographic information systems represent a jump from paper maps like the abacus to the computer. "I honestly think we're seeing a more profound change, for map-making, than the switch from manuscript to print in the Renaissance," University of London cartographic historian Jerry Brotton told the Sydney Morning Herald. That was huge. But this is bigger.

Another simple example of these secondary effects is the data shadows that emerge. Sticking with New York, take Foursquare as an example. In the early days of Foursquare the company was challenged to find an accurate data source for opening hours of restaurants and bars. But the team realized that their own data set offered them a highly accurate data shadow: their own users check-ins could reveal exactly when an institution was open or closed. When summer hours switched to winter hours, Foursquare was the first to see it. This is an example of the unintended uses that start to emerge from these very large data sets. More will emerge: take a click around this interactive map of foursquare data. Bitly generates a lot more of these; consider a few that Hilary Mason, the chief scientist at bitly, has observed:
People in Brooklyn are more likely to read about food than people in any other part of NYC. People in Manhattan are more likely to read about business. People in Queens are more likely to read about sports. The top Wikipedia article of 2012 was "Lunch" People who read about fashion read about physics, but people who read about chemistry don't read about anything else (which is behavior we see in two other categories religion and adult). Sports was the one topic for which people actually only want to consume fresh information. Every other topic was roughly equal, with religion being the slowest.

Or take something more radical. The Google self-driving car isnt a really a marvel of automotive engineering, rather its a marvelous application of existing Google data layers, matched with incredibly fast analysis of from onboard real-time sensors its the data, stupid. It captures a big potential use of layered data, while simultaneously illustrating that, as with the Internet, many of the uses and applications of contextual computing will become evident only once the platform is in place. Uses of these data sets will be wide-ranging and significant. In one study it

was estimated that government in the UK could save somewhere from 16 to 33 billion a year from the use of large-scale layered data. As autonomous human beings, we hate the idea that our lives and choices are predictable, but it turns out they mostly are. A few years ago the Chief Marketing Officer at American Express asked me how long I had had my Amex card; I told him several years. With that depth of data, he wagered he could tell me where I was going to have dinner that night. His ability to predict was based on analyzing a time-series of transaction information, and is therefore limited to actions and activities that Ive done before. That kind of predictive analysis is interesting, but its yesterdays news. The new world were entering is different. Im talking about a layer of data that exists over reality, one that is real-time and whose signals are highly diverse and redundant. One that has history, one that learns, one that can ascertain intent. Combining the data layer with simple prompt-based navigation, it becomes possible to tell a person exactly what (or even whom) she is going to want to know in a particular place at a particular time, before she even forms the thought. If youre an Android user, you can get an early taste of how this kind of layered data from multiple sources works and how it can anticipate intent, through the Google Now app. In 2013 I hope to see some of our companies do fascinating things in this area. Five years ago we at betaworks bet that the social real time web would transform the world of media. That happened, its effects are multiplying, and the consequent innovation shift is still underway. Five years from now we believe the physical world, especially urban places, will be connected to the network and will be transformed by social and real time. Yet this time, instead of transforming an abstraction (media), we are actually connecting our physical spaces and environments to the network. This transformation is more fundamental, with more far -reaching implications. As with the earlier social shift, though, we believe that the betaworks model -actively building around our core expertise in real time, social, mobile, and data -- is wellconfigured to take advantage of the big, disruptive opportunities that are coming our way. Given that setup and framing, following are some interesting places to look for and think about innovation emerging out of this contextual data layer. I mean to frame these as broad zones; in each of them, there will be multiple opportunities for large-scale innovation: i. New devices connecting the analog world to the network ii. New interfaces: a. Contextual b. Voice navigation c. Gestural d. Humanized iii. Alerts and notifications iv. New data and intentionality i. Opportunity: New Devices, wiring up the physical world We are starting to see a rash of specialized-but-flexible devices to collect and disseminate data. Here again, we are in the earliest days of a Cambrian explosion. Want a networked fork? Pretty much anything you can think of will be connected to the network. And there is a clear

advantage that will accrue to these simple, single-purpose devices that we call miniware. The device represents the function, there is no need for an abstracted layer of navigation. We have seen mobile apps so simple and elegant as to be single-touch help buttons for our lives; yet miniware needs to be even more functional. If you are interested in connected consumer devices, head on over to Grand St., a marketplace for miniware. Beyond the sensors are the devices we integrate into our lives that help us navigate and manage this contextual layer. These are the hub devices today, that means phones, tablets and routers that handle connectivity, navigation, and/or storage on behalf of our other connected devices. This hub-and-spoke model is a new, emerging local version of the classic client/server architecture. Before delving into the coming changes in software driven by this new miniware architecture, lets touch briefly on the commoditization of our hub devices. Lets take the most sophisticated one in our current arsenal: the tablet. If you are interested in buying tablets in bulk, head over to Shenzhen where you can find a 7-inch iPad clone with capacitive touchscreen, Wi-Fi, two cameras, a speedy processor, and reasonable storage all for USD $35 per unit. Or even more disruptively: the Aakash tablet, which the Indian government is subsidizing from a $45 unit price to get into students hands for $20. Its astounding how fast complex hardware is being commoditized. It is reasonable even to argue that price points are heading to zero given the migration of value to the underlying services. Our experiences are going to center on our hub interface devices, not the sensors and other specialized devices that revolve around and communicate through them. The rise of new hubs will require some serious adaptation for some industries. For example, many businesses view the TV as a hub device in the home. Its not. The TV is a second or third screen in our homes in the best scenario for the consumer electronics companies its a source of rich data, but in the more likely scenario its just another terminal. The car is another platform that businesses often regard as a hub, as a primary user interface. It too is likely not. (At CES this year, Marc Benioff provoked this question and suggested the car might be an app.) There will emerge other hub devices, but they will likely be wearable, like Google Glass or a watch. One of the key properties of these hubs is that they have an interface that is increasingly tied to you. The iPod touch is more of a hub that the TV is. And Google Glass is going to be one of the most interesting hub platforms that will launch in 2013. If you havent delved into Glass, I suggest you watch this video. In it Diane von Furstenberg discusses how she expects Glass to affect fashion and integrate technology into our lives. While I wish the discussion went deeper into Glasss potential, and the video were less marketing-heavy, its worth watching to see someone (who has built her life around a singular mission for women) describe how technology can integrate and serve that vision, and how technology will become a (fashion) accessory. Again, just like the Internet, its the unexpected applications of this data layer that will surprise us most. As Turing proved 77 years ago, there is no systematic way to determine what code or data will do. What you can bet on is that massive businesses will be born as our analog world becomes part of the network. As previously latent data, becomes accessible, readable, writeable in real time.

Lets move up a layer and talk about the software on these devices, starting with navigational interfaces, and identify some of the areas where innovation will happen, where big ideas, big opportunities lie. ii. Opportunity: New interfaces Contextual: Over the past five years the start experience has been re-defined by stream-based navigation. In 2012, we saw the beginning of another re-definition as the notification stream combined with ambient data services to give us information that is timely and contextual. On the phone, the proliferation of apps, the abundance of storage, and the ease of download is together shifting navigation away from directories and menus and toward notifications and search. A new Start layer is emerging, and this layer is where developers are going to construct true contextual navigation. Instead of having to hunt and peck for a particular app, suited for a specific context, that information will be pushed to me, at the right time and the right place. As examples, try Highlight, Field Trip, or Google Now. Voice navigation: Voice is starting to emerge as a navigational interface. If you question the importance of voice, consider that Siri is the first non-"i" brand that Apple has launched in maybe a decade. While Siri's performance is still wanting, it is becoming part of vernacular Siri, tell me what is the meaning of life? And Siri today is been complemented with editorial assistance, as searches like this by my wife suggest. And while Apple's voice service is getting pretty good for dictation of text (for SMS or emails, for example), Google has made even more progress in voice in 2012, having thrown prodigious measures of talent and computing power at the problem. In the near term, while most of our navigation through contextual data layers will occur through the interfaces of hub devices (i.e, phone or tablet screens), voice is going to become a vital interface into single-purpose connected devices. You wont have to keep pulling your phone out to find out why its alerting you to something. We are going to start seeing voice interfaces linked to embedded sensors throughout our everyday spaces in wearable devices, in our homes and cars, on our doorbells, on our toys, on pretty much everything, be it consumer or manufacturing. And the rash of embedding these devices in our physical environments will accelerate the declining cost curves of the technology, in turn making it economically viable to embed voice interfaces and sensors into more and more objects. Gestural interfaces: Along with with contextual notifications and voice, gesture- and motionbased navigation is also starting to proliferate. The rapturous attention given to early innovations like Kinect, Leap Motion and Displair suggests that gestural interfaces will start to enter our lives. The Leap Motion demo got a lot of circulation; for something different take a look at Pinokio, a Pixar-like lamp at the University of Wellington in New Zealand. And then consider very simple gestural interfaces that respond to simple waves, as the Nest thermostat does. Or, lastly, check out this imaginative video by PrimeSense, which is producing the Capri, a cheap, miniaturized 3D sensor. Navigation of this data layer is going to get complicated and rich with innovation. Humanized and zero-latency interfaces: Over the past year I have observed so many of my colleagues pick up and judge a new app initially by the criterion of the smoothness of interaction

that is, how it feels to touch and swipe. As we integrate networked devices and their interfaces more and more into our lives, we want the hardware and interactions to feel natural. The technology needs to be humanized, and feel human. The interfaces need to be fast and the gestures natural. The services and products, hardware and software, that succeed will feel like seamless extensions of ourselves. The importance of speed and zero-latency interfaces in this emerging contextual world cannot be overstated. Contextual data will often be relevant to me only for a very short period of time; getting it to me, via the right channel, on time, is vital. The Google team are starting to roll out knowledge search, search that uses structured entities to provide context to users in real time. From a discussion with Amit Singhal, you get a sense of how important speed and context is to the future of search as these interfaces become more and more integrated into our lives. One of the questions I repeatedly ask myself in our business is: Where is the start state? What does the experience of turning on a device, and tuning in, feel like? Start state is still very much in the process of being re-defined. Its no longer the Start button or finder menu, its not Google Search, its less and less the newsfeed, its not the app directory or screen icons. Will it be a contextual alert-and-notification interface, a user-defined agent interface, an augmented reality sidebar in glasses, Siri? The glib response is all of the above, but we aim to understand the relative value and importance of each of those components to the emerging contextual interface. As navigation shifts toward contextual alerts and notifications, voice, gestures, and search, operating systems will lose the ability to drive distribution of default, OS-tethered applications. This is a lesson learnt by Microsoft. Once upon a time the Windows desktop was highly valuable real estate. During the 1990s, a shortcut on an OEMs default Windows desktop configuration was regarded as a critical competitive advantage for websites. But as the browser and web search became primary navigation points, the relative power of desktop distribution weakened. Platforms are wonderful things, especially when they are open, but they can become rapidly commoditized as the non-native navigational layers on top of them become better and more useful than the platforms own start state and metaphors. Apple iOS, for example, is clearly moving down that path towards commoditization. iii. Opportunity: Alerts and notifications Beyond navigation, the stratification of the alert/messaging bus is an area that is begging for innovation. Making this work effectively will be a vital building block for the contextual internet. Today, new devices and new sensors often have no option but to crudely hack their way to the top of your notifications stack. For contextual computing to become a part of our lives this has to change. We need fine-grained, contextually relevant interfaces for alerts ones that tell me what I want to know when I need to know it, but dont otherwise clutter up my alreadyoverloaded consciousness. An example: In the fall of 2012 I got a Twine device, a flexible, single-purpose sensor that was funded on Kickstarter. I set up the device to message me when it reaches a specific temperature (55 degrees): i.e., Device, tell me when you are cold. The problem is that the device uses the simplest form of messaging an alert, which is the SMS text. SMS, today, sits at

or near the top of the notification stack for most people. Yet once a whole bunch of devices start to send text messages about worrying temperatures or low Christmas tree water levels or open garage doors, you are either going to turn off the devices or push their alerts far down in your prioritization stack, defeating the whole point of the devices. Another example: Do you have any friends who send you texts instead of an email? They likely do this because they get an immediate answer, by pushing themselves to the top of your notification stack. Same for iOS or other badge-based visual notifications. In fact, once upon a time, it was true for faxes! This has to change, we cant keep re-inventing new messaging layers to supersede the others; instead we need effective, multi-platform filtering along with smart passive alert management. Messages and content need to be accessible but also decay gracefully. This is hard but necessary, and in 2013 I believe we will see a better layer of alert management and notification infrastructures start to emerge. iv. Opportunity: New data & intent Contextual information will provide a rich strata of data, but in order to make them work for us we are going to have to find ways to map that data to intent. Determining intent has been difficult in most cases; when its not hard (e.g., intent-driven searches) it has proven hugely valuable for business/commerce. Yet intent is going to be more discernible in this world of contextual computing. Already today companies such as Socialflow are starting to use language to determine intent. Wedding this capability to the contextual data layer will, I believe, enable monetization to scale in a manner that we havent seen to date on the social web. Social media, in particular social media on mobile phones (where screen size is limited), is hard to monetize because it is devoid of data context and intent signals, and the existing tools to improve context (behavioral targeting, psychographic targeting) arent dynamic. Tools like Socialflow are starting to structure context in the real time stream and provide the ability to target offers and present highly contextual ads based on language. Take a look at this fascinating presentation the Twitter team put out re: second screen viewing and Twitter usage. The advertising section shows how Twitter users are connecting and discussing ads in real time. As a data link firms between the viewing platform (TV) and the discussion stream (Twitter in this example) you can see the opportunity emerge for intent rich, highly targeted -- useful, interesting, advertising. Match that with location and the emerging data layer, you can see the beginning of a big, big new business opportunity. (For more on this, see my recent discussion on Bloomberg about how Socialflow is delivering context into the real time stream). Can we extract analogs from the four primary metaphors (pages, search, social feeds, and apps) for navigation that have emerged on the web? What can they teach us about this new data layer? What is the analog to an HTML link? A check-in? Or is that more akin to a click? What are the equivalents of web sites? Physical spots where we stop and spend time? While we have been building and dwelling in our networked world, we have been trying to absorb these metaphors into our lives. Over the past five years we have thoroughly deconstructed the two first navigational metaphors of the web (pages and search) and reformed much of how we think around real time streams and apps. As this new contextual layer emerges we are going to have to de- and re-construct our metaphors once again. It is going to be fascinating to see how we apply web metaphors to our physical space. Figuring out how to tell stories and discover things via contextual data layers is going to be an area of innovation and exploration.

Finally, in closing this section about the contextual internet it's important and fitting to add a point about openness. This contextual world, this contextual Internet, requires open interfaces to both data and devices. Services and products that are designed as islands will die; those that integrate with other systems will flourish. The logic is fairly simple, and familiar. We are creating a network of data, the value of which comes from its networked nature and accrues to those who participate in the network. Data islands will exist but they will, in all likelihood, be short-lived. Take a device as simple as the Swivl. Its value comes from its ability to connect to cameras or devices you place on it without that its just a dumb robot, with that its a useful innovation. Fortunately, many device manufacturers are starting to realize that their devices have to be connected to be useful its Metcalfes Law all the way down, and simple, open interfaces are the cheapest in every sense. B. Default apps Relative to Facebook and Google, Apple and Amazon are weak at app and web software development. This hasnt affected Amazons business in a material way yet, but its starting to affect Apple. Apples default apps are regularly no longer best in class. From mail to calendar to books they have been replaced by many of Apples users. In 2012 I started using Sparrow for email, Google Maps for mapping, Chrome for browsing, Fantastical for Calendar, Brewster for contacts, Rdio for Music, Kindle for books and longform web pieces, and WeatherCube for weather. The only Apple apps I use on my iPhone are Phone and Contacts, Messages for SMS and Podcasts. My kids complain about the Apple iOS apps you cant delete. And competitors most significantly, Google are moving fast, and succeeding, to build better replacements for the full suite of default Apple apps. In Googles case, they go one step farther to leverage the value of their cloud and other networked state data. Coupled with that they are starting to introduce cross-app navigation that bypasses the Apple OS interface entirely. For more on this trend, see Liz Gannes piece, The Year I Basically Stopped Using Apples iOS Apps. and Rich Greenfields How Google Ties YouTube and Chrome Together Within Apples Ecosystem (yes, you need to register, its a broker dealer thing, and for Rich its well worth it). As a zig to Googles zag, Twitter is moving in the opposite direction, consolidating its experience into a single app and throttling third-party access. Yet its unclear whether and how much closed networks can prosper in this new emerging environment. Apple is the icon of a closed stack. Yet at the OS level, Apples platform is starting to fall behind, and its reasonable to expect Androids advantage from its open software stack to widen its functional lead at the OS level in 2013. There are plenty of specific examples of this but most of them relate to device management features (e.g., do-not-disturb, parental controls, sharing buttons) that Apple has tethered tightly to the OS, so much so that there isnt any way for developers to compete and offer better services. Match that with the fact that Apple has developed a vested interest in the app as container and with its High Street model for monetization (lots of successful small apps, few breakouts) and you have a system that is open on several flanks to competition and disruption. Track back over to Twitter, and as they consolidate the experience into owned and operated end points they are also launching Vine, a short form video app, as a separately branded experience, seemingly independent of Twitter, brand and integration wise. These inconsistencies reflect a reality based in uncertainty. Uncertainty re: mobile, uncertainty re:

media types (eg: video) and uncertainty re: the extensibility of brand. This climate is offering a lot of opportunity for startups. Given the platforms that are in place today, the speed at which a startup can gain significant user traction is unlike anything we have seen before in technology or business. Developers can integrate everything from identity to payments in minutes. Users need invest no more than a few clicks to test and trial a new app or experience. Betaworks had front-row seats to an extreme example of this early last year when OMGPOP, a company that we seeded, launched a game called Draw Something that, as Ive already noted, got 50 million users in its first 50 days. Then, for a brief period after its acquisition by Zynga, Draw Somethings fortunes flipped and the app reportedly lost a million users a day. At the same time, many apps are integrating commerce and content into a super-simple flow that makes them essentially single-click experiences. When done well, these are the apps I consider help buttons for my life. And those are the apps I am happiest to spend money on. As Bruce Upbin observes: [T]he mobile form factor drives a habit-inducing simplicity that will grab and take hold of more and more consumer spending. Yet despite all this, the most effective monetization models that are scaling in this world are commerce- or subscription-based. In 2013 we will see significant progress on mobile advertising. Facebook first and foremost has to demonstrate the breadth and scale it can achieve in its mobile advertising model. If Facebook can make it work and integrate its Open Graph so that the ~70% of authd-in users on iOS, and ~48% on Android get better-quality advertising than everyone else, then it could unlock a huge opportunity for itself, for publishers and for application creators. The recently announced Graph Search is clearly a big step in this direction. The potential is there and it's going to be fascinating to see its execution. If Facebook can make search a significant vector of navigation and use it to surface intent, it will become as central to the experience as the newsfeed and much more useful on mobile. However, today, it's unclear how useful and relevant the data set on Facebook is for search, and particularly intent-rich search; Facebook likes are fairly polluted as a signal and adapting dominant user workflow is never simple. C. Personal device clouds As noted above, concurrent with this shifting app world we are starting to see dramatic growth in small, single-purpose devices miniware coming to market. As I outlined above, many of these devices will hang off hubs for connectivity, storage, or user interfaces forming a personal device cloud. For a long time, hardware represented a tall barrier to entry for startups. But several broad changes are conspiring to make todays environment start to look very different. Rapid prototyping tools like MakerBot, flexible factories, visual communication tools like Skype and Google Hangouts, and collaboration tools like LayerVault have dramatically dropped the cost of developing beta products. Betas work, an insight that continues to spread mimetically across industries. The relentless commoditization of processors, storage, memory, parts, and batteries has made it cheaper to build affordable miniware. Add in the new funding platforms (the various components of the emerging independent seed-stage stack I discussed above) and you get a

rapidly growing marketplace of networked devices. A highly creative, product-centric maker community is forming, much of it here in New York City, around this new vision for hardware. Lets take a deep dive into one area of miniware that will see big changes in 2013: the TV. The TV is not usually thought of as a peripheral device since the television has traditionally assumed such a hallowed position in our home and culture. Yet given this new device architecture, the TV is becoming just another device on your local network. Control of the TV and much of its data (e.g., your preferences and personalization) will come from our phones and tablets, not from the TV or its manufacturer. In 2013 there will be a massive acceleration in innovation as the TV collides head on with the Internet. Apple will strike a set of deals with the cable companies that will mirror its initial wireless deal with AT&T (my guess is Comcast and Time Warner out the gate). Apple will provide a box that is cable-ready and fully integrated so that it plugs and plays with any TV. There are arguments for and against Apple getting into the actual TV set businesses. I would bet it wont, but even if Apple does strike a deal, it has to operate with an existing TV, given consumer expectations for quality. On that box and its services, Apple and the cable companies will extend the data platform of the Internet into the TV screen, slamming together two massive businesses. Its Apple and Big Cable, so expect the platform to be gated, with TV-based apps approved by Apple, similar in design and process to the iPhone. Concurrent with this data distribution business, the fight for multi-channel video (otherwise known as the content that media companies are banking on that consumers still want) will play out. You can begin to see the outlines of this in the table below, compiled by BTIG from Sandvine data and showing the 10 biggest users of bandwidth in the US. Its pretty interesting. Use of rich media exploded in 2012, with US bandwidth consumption up 190% for the year.

Observations: Bandwidth usage is becoming somewhat less concentrated: the top 10 are using 5% less than they were in the spring of 2011. Netflix continues to dominate; if you are interested, dig into the Sandvine data: Netflixs share of peak downstream viewing rose to 33%.

YouTube gained a lot of share, up 30+% at 13.1%; consider the ancillary effects of that on the platforms successful content creators, especially the channel providers on YouTube. Surprisingly Skype dropped out of the top 10; BitTorrent lost a lot of share: 17% down to 10%. And iTunes, which hosts video and music, streaming and downloadable, is still small, showing how much progress Apple needs to make. At 3.4% it is relatively insignificant. Facebook is very small at 1.5% and lost a fifth of its share in the past year; in other words, as its user base doubled, it lost bandwidth share, and thus has not grown its value as a platform for rich media.

These numbers reinforce that the collision between TV and the Internet is indeed producing a very different, and not yet stable, business landscape, where a new set of innovators can succeed both in content and distribution. Apple will enter this market. But its unclear whether theyll be able to create a seamless experience for the user that is as controlled and as managed as their design and architecture demands today. Combine that with the proliferation of low-cost miniware connected through our hub devices and their interfaces, controlled by our smartphones and tablets, and we can see the outlines of a true personal device cloud. D. Media and what storytelling in 2013 The world of media will be upended once again in 2013. As with other themes I have covered, there will be push and pull; this isn't a straight-line story of disruption. Rather, it's the tale of a massive existing creation and distribution system simultaneously evolving on its own accord and being disrupted from the outside. The broad shifts that continue to press against the creation and business of media include the transition of media companies to distribution over IP networks and the cloud, the decline of broadcast, the rise of narrowcast, the democratization of creation and distribution, the melding of previously distinct media types and forms, the rise of video over mobile, and the advent of new consumption technologies (everything from Apple TV to tablets to Aereo). But rather than focus on the technology let me use changes in the dominant forms of storytelling to frame this discussion. Start with TV. Over the past five years we have seen an incredible resurgence of storytelling on television networks. Homeland, The Sopranos, Mad Men, Breaking Bad, BS:G, Friday Night Lights, Downton Abbey: we are living in an era of amazing storytelling on television. Why has this happened? Many predicted that with the rise of IP and collapsing windows of distribution, we would see shorter, cheaper programming not higher-quality, long-form media. Instead, the expanded availability of scaled PPV and subscription models has unshackled long-form storytelling on television from the chains of a business model that depended on syndication and restricted the availability of archived content in order to sell network advertising in the future. Now something comparable is starting to happen with Internet storytelling. Over the past five years Internet storytelling has become highly fragmented. As happened with TV, this was a function of the business model, or lack thereof, but it was also a consequence of the technology and the medium themselves. The web and its link structure gave rise to amazing new forms of media but it also resulted in a highly fragmented experience where everything was one click away from everything else. Writing or reading long-form media was hard when the

temptation of a click to something maybe, possibly, hopefully more interesting was one finger touch away. All too often when I set out to read a long-form piece on the web I soon find myself three clicks away from the original article, having followed the thread of a hyperlinked thought pattern thats interesting. And worth doing but its not the focused, crafted experience the author labored to create. Its no longer author-led. Attention became fragmented and the arrival of stream-based navigation (i.e., Twitter, Facebook, Tumblr feeds) only accelerated this dispersal. The arrival of the iPad and the Kindle started to reverse these dynamics. Tablets, as well as phones, are far more intimate media experiences than desktop web. We hold them in our hands, we touch them and speak to them, they are impressive and they understand a bit about our orientation and movement; they are in a sense an extension, an element of our selves, as opposed to disassociated objects that sit on a desk at work or in a corner at home. While the bulk of apps on the phone or tablet today are simple containers of web content (80% by some estimates), they all must be developed, often at considerable cost, and distributed as encapsulated apps. And while the app format loses some of the benefits of web content (e.g., embedded linking), app creators and users clearly believe the benefits outweigh the costs. Steve Jobs's original and forceful conviction was that applications on the iPhone would exist only via web apps, as opposed to natively encoded apps; as it turned out, he was correct in his vision, wrong in the execution. While mobile apps are simple containers, they exist as discrete applications because as apps they can fully access the breadth of technology on the device and as apps they represent for users tightly designed, one-click functionality that single-button "help" action I talked about earlier. The consequence of this is that mobile apps have created an entirely new canvas for creators and users alike, one that is intimate and immersive and well suited to storytelling. This canvas is now reinterpreting how we use the web. Midway through 2012, we ran a small un-confer ence at betaworks called Cleaning Up and Slowing Down. The theme and discussion of the day was how to reform and reinterpret the web to create simple experiences that offer creators and users alike the possibility of longer-form, more immersive storytelling. I was amused to see that the team kicked off the day with the Gangnam Style video the ultimate representation of fragmented, collagebased media. I saw this as a subtle acknowledgment that the emerging new long-form medium needs to embrace and extend the existing web its a branch in the emerging tapestry, not a replacement like a magazine was an extension of a book, or a... (Ahem.) Moving on. This emerging new slow web ports the immersive visual expectations of apps to the web. Examples of sites that are doing this include Digg, Svbtle, Medium, Branch, Quartz, and tapestry. But you don't have to be a whole site to embrace this new form even discrete features are starting to embrace this new clean web

aesthetic. In December the New York Times released a long-form piece called Snow Fall; its a terrific example of emerging Internet storytelling. It offered a scrolling, unfolding visual experience akin to the tablet but matched with a reading experience that worked for users as well as the author. It pulled you through the experience even if you didn't read every word you could flip through it, study it, and immersively experience it. Executive Editor Jill Abramson summarizes the results: "At its peak, as many as 22,000 users visited Snow Fall. ... Strikingly, a quarter to a third of them were new visitors to NYTimes.com. They were quickly hooked: users spent around 12 minutes, often more, engaged with the project. More than half a million visits went directly to Snow Fall, and more than half of those direct visits were from new Times users (or readers who hadnt visited the site in a long while) lured to our journalism by this feature. In sum, then, people heard that The Times was doing something neat; they came in droves; and they stuck around for a while." Its interesting for a minute to dissect her comments. First, start with the content. She clearly appreciates what an innovative form this was (read the rest of her memo for further color). Second, she highlights that much of the distribution came direct. This highlights the power of the social web to end-run search and offer the ability for a large number of people to directly find something regardless of its domain. Third, she emphasizes engagement the real engagement of readers/users spending time on the piece, and then sharing it. Engagement in excess of 12 minutes is very, very long for the web. Chartbeat has become the way people understand and measure this kind of engagement. And as Chartbeat is now serving 8 of the top 10 media news, print, radio, TV sites in the US, I can confirm from actual data that 12 minutes is a decidedly long time. Crossword puzzles average around 8 minutes. Abramson mentions pageviews, perhaps out of habit, but as the web and web pages become app-like experiences essentially complex single-page canvases engaged time will become the critical metric to understand, track and build against. Finally, note the emphasis on new visitors. If media experiences like Snow Fall can draw in new users who aren't frequent visitors to the Times site, its a big deal and well worth the cost of development. Storytelling is part of what we do as humans, how we share, how we live, love and grow. Yet so many of the tools we have built over the last five years have fragmented ones ability to tell stories, to develop narrative, develop identity and your sense of self. And your stories about self and others. That is changing. At betaworks we have built and invested around storytelling in 2012 and we will continue to do so in 2013. We created platforms for understanding engagement like Chartbeat and on the creation side we invested in to be, Editorially, Checkthis, Svbtle, and Branch, among others. Likewise, the Digg version 1 that we launched in August was created very much in this vein a single-page app, powered by both people and data. Its designed to be a great single-user experience a simple one in which you find that a visit to Digg will yield something wonderful, something interesting, something important, something curious you didnt know. Many of the services I adopted in 2012 didnt offer a step function increase in my productivity or workflow, but rather they let me create things differently. Tapestry is an example of this that we built. Tapestry is a simple authoring platform and reading app for short, tappable stories. These can be read on the web or more often on the iPhone or iPad in an interface free of distraction. The inspiration for tapestry came from Robin Sloans Fish app and essay. I saw Fish and thought the

content was great, and so was the medium. Six weeks later we had a working alpha of tapestry. We then worked with Robin to refine the authoring experience, to make it super-simple. Simplicity is about subtraction, and its hard the experience of Tapestry needs to be about the content, not the tool. We launched tapestry into beta around Thanksgiving and since then a whole lot of wonderful stories have been created by bloggers, by writers, by kids, by cartoonists, by journalists. We think its a powerful idea that you can author your words, presented just as you want them to be read, alone or with rich imagery in 10 minutes on the web site and then immediately have that story appear as an immersive, distraction-free in-app experience. The emotional response that people have had to it has been fairly remarkable take a read of some of them here. The phone and tablet need native, intimate, rhythmic reading experiences and that's exactly what we are building.

If you want to check out the tapestry experience, start with The Italics or The Thank You War. Then create your own. In 2013 we will see these kinds of storytelling tools emerge and mature, encompassing everything from short stories and personal narratives to brands and advertisers. Advertising needs new storytelling tools as much as content creators do. While the word native already sounds like a tiresome buzzword to many, its ubiquity points to the need for new narrative and storytelling-centered advertising forms. At betaworks we spent a lot of time over the past five years building tools and investing in the creation of the real-time web and the data tools to support it. These new storytelling platforms are a complement to that real-time stream. I always believed that the real-time stream was primarily a new navigational tool a flow, not a destination. The destinations are the endpoints in the experience, the places you drop into. Some of them are transient and require little

immersion, some of them require more. In 2012 this framework took a few big steps forward and some number of smaller steps backwards. The steps forward were around the creation of these new immersive authoring and experiencing tools, the steps backwards were about the stream platforms attempting to redesign themselves as destinations, a place for active consumption as opposed to navigation. We will see how this plays out in 2013, but I suspect this time next year the stream will continue to be primarily a navigational experience. It runs against its grain to be a destination, and individuals all have a conflicted relationship to the next hit of new information on one hand, we desire and crave it, on the other, we become bored and exhausted by it when it starts to overtake our available time, crossing the boundaries we want to set in our lives. If the stream is the destination then its shallowness will start to work against it. It will seem thin and meaningless. Its depth comes from its links out, not its integration within. IV. betaworks in 2012 and beyond In starting betaworks in 2007, we made a bet that the media business would become more social and more data driven. We made two other unusual bets: we created an operating company (instead of an investment fund), we chose to both build companies and do seed-stage investing from the same vehicle, and we chose to build betaworks as a network. Five years on, they are turning out to be great bets. As I mentioned in the introduction, betaworks is a different kind of asset class. We run betaworks as a network. Inside of most organizations transaction costs arent transparent, which drives enormous inefficiencies. Technology and the market is pulling apart many businesses into their component parts so that these transaction costs become apparent and each can be run more effectively. Organizing betaworks as a network ensures that each part each product stands on its own, set up as a separate company. Yet each part, each product, is connected into the network. Connections can be API based exchanges of data, or simple, arms-length business agreements. I believe the returns we have achieved for you, our investors, are because of this network structure. Returning invested capital, an 7-8x equity appreciation, a 5.6x realized and unrealized gain on our investment portfolio: all of this is happening as the compounding is just starting to yield returns. As greater minds than us have proven, compounding is a wonderful thing. Our mission for 2013 and beyond is to continue to build and invest in great social, real-time, data-driven media companies, but on an even larger scale than before. We start the next stage of our growth in a good position. We have large, valuable stakes in bitly, Chartbeat, and SocialFlow. All three companies have great products and strong sales pipelines. This year we took a large stake in Bloglovin, the leading reader for fashion blogs and fashion brands. We have a stable of terrific early-stage companies, notably Digg, tapestry, Findings, and Photoswirl. Through our partnership with Fictive Kin, we have developed two other great products. Done Not Done launched two weeks ago. I was very happy with the launch, one of the best we have done in a while, you can read about it here, the todo app you might actually want to use. And Rushmore.fm is currently in closed beta. If you havent tried these products, wed encourage you to do so there is no better way to understand what we do at betaworks, than to use what were building.

The Digg acquisition illustrates how we work and how our process is different from those of venture firms and most operating companies. The deal happened very quickly starting with an email from Brett Burlington, the entire process took just a few weeks. Once we saw that there was an opportunity to acquire such an amazing asset, we put an offer on the table, including a clear plan for the new Digg, in 36 hours. We got to a handshake pretty quickly after that, and with that in place our News.me team bore down and relaunched the entire site in six weeks. At a prosaic level, the sprint was necessary since we didn't want to assume the legacy infrastructure of Digg.com. But more importantly we wanted to re-launch Digg as a startup, on a 2012 stack, one that we could build on and iterate quickly. The new Digg, what we call version 1, launched August 1st, a day ahead of schedule, and weve been absolutely thrilled with the reactions of the millions of users who have visited the site and used its new mobile and tablet apps in the months since.

The new Digg is a desktop website, a mobile web app, an iPhone app, an iPad app and a daily email. We use the large stack of data that we have built or partnered with at betaworks to surface the most interesting stories that the Internet is talking about right now. Sitting on top of this data, our team of moderators compose the Top Stories at the top of the page. Data drives the rest. Over the past few months we have doubled the user base, growing at a healthy pace week over week. We are starting to roll out the email product to the 10 million Digg users who have expressed interest in it. Mobile is central to the new Digg, accounting for over 40% of daily usage (up from 15% in June). And critically writers and publishers media companies are seeing Digg re-emerge as significant referrer of traffic. Jon Steinberg the President, and COO of Buzzfeed talks about Digg here. And have also started working on monetization at Digg, with a program were calling Apps We Like, where each week we profile a sponsored startup on the website and iOS applications.

In addition to developing products internally, we continued to make seed-stage investments. In 2012 we were as active as weve ever been, making 21 investments in new companies across both the United States and Europe. We had five exits in our portfolio during the year, the most notable being the acquisition of OMGPOP by Zynga in March. We estimate that our investment portfolio included both realized and unrealized gains is now worth more than five times (5.6x to be precise) what we paid, and were really only getting started. As we look to 2013, our seed investing strategy wont change. We will continue to fund the most innovative companies and products building for the social web, as well as entrepreneurs that we believe will create the strongest and most collaborative network of people creating new things in this space. We also hope to make seed investments targeting the same themes that were building for: new creation tools and new forms of storytelling, contextual computing and ambient social, the design- and data-driven web, and more. But as has always been the case, we will make investments in the products and people that delight us, that show us magic, and that keep us up thinking at night. Driving these new products and investments is a team thats even stronger than it was twelve months ago. We made two senior hires in 2012: Andrew McLaughlin, formerly of Tumblr and Google, joined to lead growth initiatives, and Paul Murphy, formerly of Aviary and Microsoft, came on board to lead new product development. One of Pauls first projects is formalizing our Hacker in Residence program. While we have had hackers in residence in the past, Paul has created a larger program, with six amazing engineers now working on the next generation of betaworks products. Coupled with our Fictive Kin relationship, additional in-house development, and several interesting potential acquisitions, we have the strongest pipeline in our history. The team at betaworks is now stronger than its ever been. We have the talent bench strength across product, technology, design, UX, data to build out the media + data company that I have dreamed of.

Financially, were in a great position. Despite distributing nearly twice our invested capital back to our shareholders in 2011, we have ample cash on our balance sheet. And, again despite the distribution, we believe our early investors are holding equity worth perhaps eight times what they invested. Its been a good run and our best days are still ahead. In Conclusion Its remarkable what technology innovation has birthed in the past decade. Today, we can use simple handheld devices to get information about almost anything, or find someone from almost any corner of the world. These devices and information are now in the hands of billions of people. We gaze in wonder at NASAs ability to put a six-wheeled truck on Mars, yet if one of our ancestors dropped in on us from a mere hundred years ago they too would be amazed: amazed at how we communicate, how we share information and how we do commerce. Billions of people are now spending a meaningful amount of time each day working on a common platform or network. This Internet thing is no longer a place we go, instead it is a pervasive part of our lives. The advent of a common network of this scale is unprecedented. Despite all the promise of this near-ubiquitous network, fatigue emerged in 2012. Much of this fatigue is borne out of poor design choices. The combination of poor filtering and notifications (resulting in services that overwhelm us), inflexible social graphs and the tendency that social media has to encourage mimetic desire, a soulless habit. Match this with a business drive that prioritizes user growth over creating actual businesses and you have a climatic shift that can feel deeply wearying, yet is still mid-birth. And it is hard to keep perspective. This bigger picture is one where the landscape of how we live, love and do business is changing: changing, and already changed, by the things we create. The fatigue we feel is of our making, a result of flabby, cautious, unimaginative design, fueled by the combined actions of users and developers alike; and it is ours to fix. The lack of monetization is a choice we have made. Companies wants to sell things, they want to talk to customers they might not have the tools or culture to enable them to do this, but ultimately our companies exist for their customers, and customers are demanding transparent, honest, two-way access to their vendors. The Internet is no longer a thing, a place we go; it is everywhere. And the social internet is no longer a fad, or a joke about who posted a picture of who eating a burrito; it is part of how we live and get things done. In recent years, the global network is the single most significant driver of economic productivity gains. And this new data layer this Cambrian data explosion is swiftly becoming an inextricable component of this infrastructure; it will further change the way we do and relate to practically everything in our society. During the actual Cambrian explosion, virtually all of our existing animal forms appeared and stabilized. The change was likely caused by an increase in oxygen in the air and calcium in the seas. Our own (vastly less significant, but still interesting!) explosion in data is caused by this common network, and the shift of all communications, media, information to it and openness is the oxygen that this network needs to accelerate its development and drive innovation. Open data trade, accessible data will, we believe, result in the creation of significantly more economic value than a closed system. The grain of technology-based innovation in the network pulls to the center and then rapidly reverses itself and drives value to the edge. For this reason, open data trade between platforms will create bigger, more sustainable markets and businesses.

2013 at betaworks is going to be about building: continuing to build things that we hope make lives a bit better. Trying to give people fantastic tools to discover, share, wonder, and create. I want to thank you for your ongoing support of betaworks.

Sincerely,

John Borthwick

Some further reading: Pingdom: the Internet in numbers Different ways to think about productivity impact on society and the decreasing emphasis on ownership: http://www.kk.org/thetechnium/archives/2013/01/the_post-produc.php Want some simple examples of how context and data sensors are going to transform our world, see Inrix Parking system that provides real-time updates on available spaces and detailed location information for off-street parking. From The Auto Tech That Mattered at CES Wired.com http://bit.ly/Xqsnms Or. Some very basic examples of contextual computing: see the fantastical desktop and iOS app. Its a simple functional calendaring app but if you put in an item called Dinner with Joe it automatically adds it as an evening item at 7pm and it offers a pull down to verify which Joe in your address book this is. This is actually not using any device based data, its just smarter calendaring that cross references structured data (i.e.: name, event type etc.). But its the beginning of this shift. Take a look at Dark Sky app. for another example. Expect Samsung to experiment w/ alternative OS's and do Kindle Fire like things to Android as it asserts itself over its software stack: http://ben-evans.com/benedictevans/2012/11/22/android-china-and-addressable-markets http://www.asymco.com/2012/11/29/the-cost-of-selling-galaxies/ Where Did All The Email Sharing Go? This chart shows the dramatic fall off in email refers at buzzfeed. The cause is not clear, but my hypothesis is this is been driven by the shift to mobile shift and the fact that sharing in email is hard on mobile devices. See: http://bit.ly/10Cb89j .. on the mobile shift: Since 2000, the number of mobile phones in the developing world has increased by 1,700%, and now many of those people are upgrading to smartphones with data plans that cost as little as $2. The price of an internet-capable smartphone has now fallen to $50, and in India its possible to get tablets like the Aakash 2 for half that ... ... more about the rise of contextual computing, follow http://scobleizer.com/ as Robert Scoble does his interviews for his forthcoming book on the subject. ... on the thickness of data space, see: http://www.floatingsheep.org/ about personal data clouds. Something I talked about last year and we see emerging More on uni-purpose devices: HAPIfork & The Colbert Report - http://bit.ly/13DE9QF Steve Mann the original cyborg: http://bit.ly/Vh0KPh YotaPhone: http://bit.ly/ZXHVjk Sensor Lamp (http://vimeo.com/53476316) from the Unv. of Wellington The Stage is Now Set for an Apple Television - Videonuze http://bit.ly/11CRFVb Voice navigation, Google Vs. Siri Demand for Samsung phones jumps