From The Vault Jeff Smith (Smule)

Come watch Jeff Smith, CEO of Smule, talk about running one of the most successful app development companies in Silicon Valley. With smash hits such as I AM T-Pain, Glee, MadPad, and of course Ocarina which is one of the top 20 downloads of all time. Learn more about creating a great app, getting noticed in the packed app store, managing limited resources correctly to best benefit your startup, and focusing on product.

[00:04] JEFF: Well gosh, I hope that whatever we talk about here is relevant and something that you're interested in talking about. I could make this a Smule infomercial, but I won't. There are a number are topics that we're dancing around in the market we're developing that are probably relevant to some of you. I'd be happy to go through some detail of customer acquisition and mobile, you know Apple vs. Android and what's happening business-wise on IOS vs. Android. Those are some of the things we're studying. I'm happy to share some of the insights we have with you. Let's try to save a bunch of those topics after a couple slightly more prepared remarks.

I did want to at least give you my preamble on a few things I think are important. I think I was invited here not because I have had a couple of wins, I think I was invited because I had like 17 arrows in my bleeding back and I've learned through trial and tribulation all these mistakes some of you may have made, but I guarantee you haven't made more of them than I have. Maybe I could help to impart some wisdom so you don't make some of the same mistakes in your careers. I'm not done making mistakes either, I'm sure I'll make a few more tomorrow and the day after that. Maybe that would be a reasonable format for this conversation.

I'll switch over to a few prepared remarks, from this you'll see how much I dislike PowerPoint and Keynote and the rest because I'm trying to go for the complete minimal look here. There you go, great. Don't you just dislike those presentations that go on for 50 slides and each slide has sub bullet points and sub bullet points and they're just reading off the slideshow? I've never enjoyed that. This is mercy relative to those types of presentations.

I have four quick Topics: product, cumulative value because here we are in Fairchild and I have to talk about the 4004 processor vs. the 6502, customers, and finally team. Then we'll segway into more conversation to what we're seeing in mobile. So first, product. There's kind of this truism in Silicon Valley that the best technology often doesn't win and perhaps that's true. The question I'd ask you is if that is true for the best product? Does the best product win or lose? I'd offer virtually every time the best product wins. What might be the distinction between a product and a technology? Who knows. From our company's perspective product and this holistic definition and thinks about the user experience and how likely the user is to come back to the product and how often do they recommend the product to someone else.

When you think about all the investments we could make in technology companies, we can invest in marketing, sales, finance, and GNA. If you pull up the balance sheet of a lot of top firms you'll see like in Apple they are putting maybe 10% in RND, Microsoft and Google maybe a little more. To this day I don't think Google believes in marketing, perhaps to their credit. We have this expression at our company that there are two types of people in the company; those that write code and overhead. If you're writing code, good for you because you're adding value. If you're not writing code I hope there are not a lot of you because you're overhead. I'm technically overhead which puts me in a slightly precarious position; however, I do try to get in if not write code develop a lot of the content to the extent that the developers will accept any of my check ins and sometimes they don't.

Perhaps the most significant market channel that we overlook is word of mouth, especially in mobile. The testimonial of me pulling out my phone and showing you something is gigantic. That's kind of hard to measure or forecast. If you talk to all those people talking about how they built a great new viral marketing channel, it only works if that user wants to recommend that product. If the user isn't recommending the product you could have the best marketing channel in the world and it still doesn't work. I could buy Super Bowl ads and get all these going to my service, but if they're not using it or telling their friends to use it and don't really like the product then you have a problem.

Let's take our first shot at Google. Google is an online search company based not too far from here. Look at Google TV, if you looked at the press coming out at the end of the year they all panned it and it’s not clear if Logitech is going to continue to ship it. I haven't used it so I could be naive about the whole thing, but it’s not obvious out of the gate that they have built a great product that people will recommend to other people. Trying to think about the product and user experience upfront, specifically who that user is going to be and then if that user will recommend the product; these are relevant questions.

As it relates to our own internal product green light process, we mandate that. We don't start writing any code until we build a forecast across 4 metrics which are daily active users, sales per daily active user, and daily user push. We're literally building that forecast in advance and then defending it. Maybe we're right and maybe we're wrong, but that is the discipline. In addition to that we say, "what’s the 22nd YouTube teaser?" how do you distill that product down into the essence and how can you communicate that essence succinctly over a video channel to lots of users? If we can't convince ourselves that we can do that for 20 seconds or less, maybe we shouldn't build that product because it doesn't make sense. If we can do that then we think we'll actually drive significant adoption of that product through word of mouth. For those studying viral marketing -- a term I hate -- the viral coefficients are going to be higher.

We have assets out there that we shipped two years ago that are still driving 5-10,000 downloads a day and there's a direct correlation between those downloads and YouTube views of some of the teasers we launched with the product. It comes down to how you communicate that value proposition. Another test we run for our products is, what's a 20 second demo? Can you get to a use case inside of the products within 20 seconds where I can give you a compelling demo? Yes or no?

Our first product which was a complete toy, the Sonic Lighter, back in the early days of the App Store. By the way, there were 18 other virtual cigarette lighters that were in the store when we launched and 17 of the 18 were free; we were the only ones that had the gall to charge 99 cents for ours. We had a great YouTube teaser with this man playing with fire primal thing going on with the Liggity [sp?] soundtrack that we pirated from the 2001 movie. Ultimately, the end of our video which was only about 30 seconds long of this dark setting of this dude playing with flame on his phone and he blows it out. Our demo was you could blow out a flame on your phone by detecting amplitude bursts against the microphone and approximating when; it was a great demo. Gizmoto, one of the online blogs, got their hands on the video teaser when we launched the product and rightly so accused us of trying to start cult; it was the best piece of marketing we could have possibly had. Two days later our product is number one in virtually every market on the iTunes App Store.

We then begin recording where people were igniting -- this is what we built into our product with analytics capabilities to understand what users were doing with our products and use that to model and make future decisions because we don't trust our instincts as it relates to product, it’s all new and these are consumers. Good luck predicting a consumer’s behavior. If you're in a company with the guy with the biggest ego and can pound the table the hardest wins, you should probably leave that company and join our company; how does he or she know? The discipline we try to have is that we don't so someone could have a hypothesis hopefully backed by data that we'll test and measure, once we measure hopefully we'll know. It’s a very different approach of building product to think about the 20 second teaser, what data we're going to measure, what are we going to learn, and what's the data that's driving me to the decision to where I think consumers will adopt these products. You roll that together and for us it’s worked so far. We've shipped 10 products and all of them have cracked the top of the charts. We have 10 million paying customers for those products in a fairly competitive marketplace.

I'm not saying we've figured everything out, we're learning every day, but focusing on product I think is something we lose sight of because we're so busy hiring the marketing and sale department. My experience in building an enterprise software company with 1/3 of the Fortune 500 as customers including Chevron, Wal-Mart (which took a year and a half), and Bank of America is that the great sales organization is certainly helpful, but if I have a great product and a customer having a great experience with that product I can have all the other customers call them. That cuts through so much more of the inefficiency of the sales process than me spending $300,000 a year for an enterprise sales rep who is going to have a travel and expense budget of $15,000 a year on top of that. It isn't that I value sales, ultimately we're all in sales, but the point I'm making is that the best products are developed by developers that are close to understanding what that customer is going to do so there is a role of market in developing that. I just draw a distinction between that and the marketing that's trying to figure out how to convince people to buy it; how to practice that somewhat benign mind control.

I wanted to give you an example of one of the products we developed not as an infomercial, but to share the experience we felt this was going to be a great demo and I think we were right. Here's a student in Texas who is not one of our employees, he's just a user and he goes off and shot a video -- this was one of a few thousand people who shot videos -- more or less sharing his product experience with everyone else. Hopefully this will work, I don't have a network. Uh oh. The beautiful thing about this video is its real, he is making those sounds by blowing through his phone with our Acarena [sp?], but another beautiful thing about the video is the authenticity. This isn't us, this is someone else. His choice of song was fantastic because if you think about the demographic target we had for this product, it’s the 18-28 year old males, many of whom grew up listening to video game music. If you get that right video game song and capture and play it for them it’s almost like pushing a button that says, "I need this now?"

[13:30] Female Speaker 1: What song is that?

[13:32] JEFF: That's Tathion's [sp?] theme. We launched with the theme from Legend of Zelda, the Acarena [sp?] of time; we played the main theme. I'm glad that worked. OK the next topic is getting to the Fairchild semiconductor point -- cumulative value. Cumulative value comes up in our board meeting all the time. This is the tale of two chips, one was the 6502 which was not actually built by Motorola, and the 6501 was. Motorola built the predecessor to this. Did anyone have a Mac 2? How about an Apple 2? I had the C. This was the processor. When Motorola came out with the next chip they had a clean break. They decided this architecture was inferior. Technically this wasn't them, some guys had taken their core architecture and done something better with it, but rather than have compatibility with the predecessor of this they built a new architecture and it was fantastic. If anyone has programmed in 68000 assembly you got these 32 bit general registers and you don't have to deal with these games on segmentation. What on God's earth is an accumulator anyway?

I remember early in my career as an engineer at Hewlett Packard having an argument with the marketing department saying -- this is where I'm going to contradict the previous point I made on the value of the marketing and that's fine -- I was arguing with the marketing department saying, "What are you guys thinking? We're going to abandon the 68000 for our HP workstations and move to this Intel processor in addition to our Risk?" and they said "yeah." I asked, "Have looked at these two processors? The Intel 8086 family is a mess and absolute joke. You won't have the quality of software written on this processor or the quality of the development tools." They said I was wrong and to look at the numbers; it turns I was wrong. Here's the Hello World program written in 68000 assembly; look how beautiful and clean that is and the Trap 15 is going into the Apple operating system here.

What happened is you had the 6800 family, the 68000 family, the 88000 family and they were all independent of one another. You didn't have this compatibility so all the developers who wrote code on this had to start again and all the ones that had written code on this had to start again. You didn't have anything growing, every time there was a new generation of the processor -- and even though the new architecture was better than the old and it was, it didn't matter. If you look at this same chart for Intel here you have the 4004 and here's the 286 or 386; if you look at the I7 core you still have some base level 8086 assembly compatibility across the architecture. Even an assembler could interpret some of that code. By the way it looks awful, here's Hello World in 8086 assembler. Note this program is in 32 bit protected mode; what in the hell does that mean? Blah blah blah blah blah EDX EAX, add the E to the AX to make it a 32 register vs. the previous 16 bit register, but look at this picture.

Intel has 80% share of a $40 billion a year market. If you end up taking my advice and firing the marketing department and only having engineers, don't let the engineers convince you they have to start over every time; don't believe the story it’s not true! Life isn't always better with the new architecture. Let me ask the engineers in the audience, how many times have you come into a company where you inherited the code from the successful product and it’s horrific? It’s like, "gosh I don't want this code, it’s an absolute mess" well gee, but that product was so successful and the basis of the whole business and why everyone is working on that product now, go figure.

To my previous point, product only works if you're disciplined about your customers. This is where I think there is some support for the adage that it’s not just about the best technology. Threading back to the previous point on product, how well does that excite the customer to where they want to share it. I think a disciplined business is going to go through the process that everyone is thinking about the customer every day. One of my favorite companies is SAS out of North Carolina. The CEO says it’s very simple, "you do two things well you'll have a successful business, one, listen to your employees and two, listen to your customers" they will tell you what to do. You might think there are things they don't understand and that you have to think about these things two generations in front of them.

I remember demoing a Frame Maker; I used to work at a company called Frame which is now Adobe and I was at a tradeshow demoing Frame Maker. We had this awesome structured technical publishing platform where everything was tagged, this was before we all started using HTML which most people know came from SGML. Charles Goldfarb who doesn't live too far from here is the father of SGML. We had taken on the task to build structure word processor and it was extremely powerful. I was demoing the product to a Word Perfect user and they asked me to show them the codes, I didn't know what they were talking about, but I guess there's this feature in Word Perfect where you can reveal the codes and it could show you all the tags behind the document so you can edit the tags directly. My point was with a Wiziwig [sp?] processor why would you ever want to do that? Just pick up the picture and move it over here. He goes, "no, can you please reveal the codes?" rather than saying "you're stupid you shouldn't have done that" and he was right! If we'd revealed the codes then there was a whole new dimension of the product available for people to edit the tag structure vs. what we were displaying was the structure; we never understood that because we were too smart and the customer wasn't as smart as we were. You have to be careful with that arrogance thing.

If you get the formula right in the iPhone market and you empower your customers, they could become your Chief Marketing Officer which ends up being fantastic when you look at things from cost of customer acquisition and how expensive it is to acquire new customers. Our TPain [sp?] product has been a top 50 ranked product for a year and a half. People say, "geez, you have a great relationship with Apple" we do, but only because we're helping them sell phones. How often is Apple featuring our product in their store, TPain [sp?] I think 2-3 times; that's 2 weeks out of 70. What about the other 68 weeks? The other 68 weeks our users are creating content and they're pushing it onto YouTube, facebook, and Twitter. Here's an example again of what one of our users has done with some of that content. It’s a little vulgar; I'm warning you in advance. Let's go back here.

[Rap video] [inaudible]

Apologies for those that find that offensive, but think about the creativity that's out there in everyone that isn't in our company. Can we get the conditions right and give them a little nudge? If so, customer acquisition cost goes down. If you add up the aggregate number of YouTube views across our customer base that has generated videos, it’s a big number. What is our cost to host that video? Zero. What is our cost to produce that video? Zero, yet I can document a direct correlation between YouTube videos and sales. Empower your customers.

OK finally team. Is it OK if I don't zoom this to continue making my statement of how dumb Keynote and PowerPoint are? Great. I saved the most important for last from my perspective and that's team. Your people are absolutely everything. Your ability to recruit, motivate, and retain your top people will more than any other thing define your success. It’s a competitive world right here right now. Google is going to hire 4,500 people. They announced a 10% across the board pay hike, probably in response to facebook stealing a lot of their top talent. Facebook is going to hire 1,000 people this year and LinkedIn just field to go public today, they'll hire another 650.

If you're starting a company you're competing with all those companies and so are we. How do you compete and bring in the best? The best innovate and build fantastic products; they are extremely efficient and that makes a huge difference. We have a formal program on training our employees at our company. We take them out to the sticks in Wyoming and I introduce them to my local militia there and we train them in shooting guns, riding horses, and lighting things on fire. It’s part of our overall management training and I wanted to share with you this nice girl who was a UC Berkley grad and a member of the bad. She was an employee of yahoo for a number of years and had the misfortune of joining our company. That's me in the hunting jacket, you can't mistake it. We taught her how to shoot a shotgun.


Does that look natural? By the way, that wasn't the big show. We saved the big show for second. Alright, so we're kind of joking; we're not that serious. How do you go attract the top talent and train them? Obviously we haven't figured it out yet, but that isn't to say it’s not important; it is. Let's open this up and see if we can have some Q and A here. In the absence of questions I'll just keep talking about things that I think might be interesting.

[27:45] QUESTION: Have you noticed changes in the App Store since launch? Apple's attitude, how easy is it to get noticed?

[27:58] JEFF: I think it’s harder than ever to get Apps noticed. The question is what has changed in the last two years in Apple's App Store and their change in attitude and if it’s harder to get noticed today. I don't really think Apple's attitude has changed too much and I don't think they deserve some the negative press around reviewing or not reviewing apps. Steve Jobs has kids; he doesn't want porn on phones and it’s his store. If you don't like it go build a store bigger than his. He can do what he wants with his store. If he doesn't want porn in his store it’s not a first Amendment issue; it’s not. Compare Apple to facebook, do you know how often facebook changes the underlying API? Do you know how often they tell people they're changing it? Who do you prefer? Opaque or capricious? I'll take opaque, wouldn't you? At least it’s predictable.

I talked to the guys at Playdom; when facebook throttled the walls almost a year ago their organic traffic slowed to a trickle because so much of their business was dependent on product going out on wall posts recreating other users or using that to drive usage. When facebook said you couldn't have this application driven 1 to 50 spam on a wall because it’s polluting the wall all of a sudden Zenga, Playdom, and whoever saw their organic growth change. I think the ultimate decision Playdom made because that was an OK time to sell to Disney and Zenga, one of the most rapidly growing businesses out here since the beginning of time and a disciplined business also suffered because of that change and they've had to do more acquisitions to try to drive growth across their network because they are not getting the same love through facebook. That's my infomercial on why Apple is a pretty good partner.

The point is, "gee Wal-Mart is not putting my product on their shelf" well it’s their store, if you don't like it you need to start Sam's Club. I think it’s really hard to scale and the first two years the distribution was wide open and you could do some creative things to get noticed and build a stall base. People have become more sophisticated and bigger so you're competing with them and us now so it’s harder. What can we do? If I have 10 million users and I'm launching a new asset I can point traffic from my existing users to that new asset. I can guarantee you I could put 250,000 new eyeballs on a new product in the first 3 days; if you're starting at square one, can you do that? Probably not. I also understand how I can tune some of these things and be smart about some of those decisions. It has changed a lot in the sophistication of products also, you will not see a fart app at Christmas ever again, but that happened the first Christmas. It’s not going to happen again because that used to be enough to break through and get a lot of buzz, now I think that's insufficient. Sorry I wasn't actually trying to make a joke about that.

I think it’s been a sea change. I think the dilemma for independent developers now is how they break in because now there is distribution. We're almost back to where gaming was 10 years ago where you built a great game but Best Buy is not going to put it on their shelf; what do they do? A lot of them partnered with publishers who would then have relationships either through their own distribution or relationships with the distributors. I think the biggest we've seen with mobile is because the market has been changing. You've moved from democratized distribution to more concentration of the distribution which means that Indies are going to have to start publishing more with publishers to move units predictability. You can still take a shot, throw it over the wall, and hope for the best and sometimes you'll get noticed or you won't. Sometimes it won't matter.

[32:30] QUESTION: What about the Android Market?

[32:35] JEFF: Yeah we've been slow to Droid on purpose. In fact, I've said a lot of publicly disparaging things about Droid, the irony is that one of those was published in the Wallstreet Journal the day Google was buying my other company which is now integrated into the Android stack. Ultimately, we're money grabbers; we're trying to make money so we're trying to avoid strategic decisions and instead have financially motivated decisions. It’s like, "if we do this, how much money will we make? How much does it cost and how much can we get back?" The problem we've had on Android so far is it’s pretty expensive to build on Android because the platform is not mature and it’s fragmented. They cut a special deal with China where there's a different version. We want real time audio, we'll even take sub 100 millisecond audio and we can only get that on one device today.

For us to roll out the TPain [sp?] product in Android which is real time pitch correction and autotune, we'd be targeting 2-5% of the market so we wouldn't make money on that asset. I think it’s a much more challenging problem Google is trying to address on Android and it’s going to take more time. The final issue that we've had is just a monetization. If you looked at the data on monetizing, the only people making money are advertising and that's not the nature or our model. Yes we sell digital goods, virtual goods, and applications which are smart things to do, but we don't advertise; it’s not aligned without brand. The only way to drive revenue today on the Android Store because the Android Store is an absolute joke -- don't ask me, just look at the numbers. How much revenue are they selling through the Android Store? It’s very small. There is no retail presence and no in app commerce until the announcement this month.

We're going to see an app commerce this month which is significant because it will open the door to the more freemium based business models. The business model issue was holding a lot of us back as well, at least those that didn't want to monetize through advertising so we couldn't make money. Everyone has accused me of being a Steve Jobs yes man and it’s true. I look up to the dude and look at what he's done. For all those folks that are choosing the professional manager over the entrepreneur? Have you ever heard of Steve Jobs? Well that wasn't the best decision Sculley [sp?] Didn’t work out, the guy who ran Pepsi; Steve did a slightly better job.

For us it’s about making money and until you have some abstraction of the hardware and the hardware is across the board more reliable and less fragmented and until we have alternative monetization to advertising, we just don't think we can make money. By the way, think about why this is. People think its PC vs. Mac all over again, but I don't believe that. Apple has scale, they didn't have that before. They have massive scale. Moreover don't just look at it as IOS vs. Android, look at it in terms of handset sales. Look at how many handsets Apple is going to sell vs. HTC. With all that concentration on that one hardware platform there are amazing things they can do and continue to do. You have to give Apple a ton of credit getting back to my product point and customer point and team point. [inaudible] Similarly, Scott Forslal, Ron Johnson, and the rest. Blah blah blah, next question.

[36:54] QUESTION: How do you generate these ideas? What helped you wake up one day and decide to make an "I am T-Pain app?"

[37:03] JEFF: Yeah I think it’s a culture. I think we've tried to build that culture and it’s about creativity and not conformity and that creates problems; it’s the source of my pain every day -- our culture. I feel like I'm trying to get the Indians back on the reservation every day. "C'mon, we don't need to go raid that village, let's plant some more corn, we'll harvest the corn and we can raid the villages later tonight. Come in and plant corn with me please" and because of that culture you end up with amazing creativity. It’s not just the designer or product manager, but the team. One of the coolest features in our fiddle was Storybook that came straight from the developer; we need the voice of the fiddle it’s your Virgil guiding you through Dante's Inferno. It was a beautiful and extremely innovative feature which is why it shot to number one I think; it’s a cultural artifact.

When we look at hiring we're not looking at skill sets, it would be great if they understood Ruby for our cloud stuff, but the first thing we care about is attitude. The second thing we care about is athleticism. Are you a great athlete? Do you have a great attitude? Wonderful, come on over. There's all this management theory about how to build companies and culture, for us is really simple. Take everyone with a bad attitude and fire them; keep everyone else. Its mean, but it works a lot better.

[39:10] QUESTION: What was the beginning of Smule? Is Smule you and X number of people? How did that start?

[39:23] JEFF: I was getting and still am getting a PhD at Stanford Center for Computer Research Music and Acoustics Karma and I was a full time student and loving it. I got to practice the piano every day and writing pieces while learning more about Beethoven, Barkok [sp?], wrote a paper on Schuman [sp?] and Bartok [sp?] At some point I debated that whether Chopin preferred boxers or briefs didn't matter so I didn't want to spend three hours in a seminar discussing that, but I was loving it. I came across the new guy they hired who just finished his dissertation at Princeton, a guy named Dr. Gowa [sp?] Technically actually he hadn't finished the dissertation yet, that came a little later because there was some drama there. He was a brilliant guy who built this new audio programming language called Chuck. Imagine Java with all the expanse of class libraries, except we're tuning real time audio in a language. This is stuff that in the past you would do in hardware. You'd plug this hardware chip in to create the reverb and you'd plug this hardware chip in to have a chorus effect and rest. Now it’s just class and you could drop into the audio stream. It was a brilliant language and I had a ton of fun programming the language.

One of my old investors kept trying to convince me to hang out at their firm and have pizza. So I spent a little time with him and he got me to evaluate some of the deal they were looking at which I thought were silly. I made the mistake of falling for it because I think he set this trap. I said, "if you really are serious about this you should think about that" "oh really, could you do that?" "of course I could do that!" So then I went and talked to Ga and both of us came together and made the dumbest decisions we've made in our lives because I think I was happy pursuing full time student status and he got the best job in the country -- a tenure track position at Stanford in Computer Music. Going back to the John Channing legacy. Why did he need to go do a startup? The answer is mental instability for both of us.

[41:42] QUESTION: How do virtual goods and currency fit into your mobile apps? Do you see that as a viable monetizing model?

[41:55] JEFF: Yes so this gentleman has a background working in virtual currency and goods. What's the impact it’s having on our thinking and does it affect our decisions on how we're monetizing across reps? Absolutely. Zenga was one of the guys that opened this up and showed what was possible. If you look where Apple is today, it didn't monetize as fast on mobile as it did on facebook. I think part of the reason is that Apple is a trusted brand and Steve Jobs trained everyone they could pay $1 impulsively. You could buy a song for $1. You could buy an application for $1. It wasn't until about a year and a half into Apple enabling in-app commerce which was the gating technology we needed to begin selling stuff in application like virtual goods. It wasn't until later that you saw a significant portion of the top grossing apps move from paid to freemium, but that's happened in the last couple months. Now it’s clear, in fact last month if you're reading the data for the first time you saw in-app sales over half the revenue compared to just upfront sales.

If you look at our Glee asset, even though we're still selling it, we're doing three times as much revenue inside the app as we are just with the upfront sale. It’s significant and I think one of the things this teaches us is that all that work you do to acquire the customer, how do you do more with that customer once you have them? If you don't do anything else with the customer I think you're kind of blowing it. It presents a challenge as well because unless you have some level of engagement, if that customer is just say, "oh this is fun I'm going to download it once and use it twice" then you're much better off with a licensing business model. If you can engage that customer and they come back to use the product 10-50 times, then you're much better off.

When you do in-app commerce Apple gets a piece and when you go through Google, they get a piece as well. Amazon is launching their store on Android which they announced is coming live eminently. The first version won't have in-app commerce, but I suspect the second would. PayPal is already pushing an initiative to provide these services and there are other great technologies and startups doing this as well.

[44:37] Male Speaker 1: The company I work for is a mobile payments company.

[44:40] JEFF: What's its name?

[44:41] Male Speaker 1: Mopain [sp?]

[44:42] JEFF: Mopain [sp?] yeah. Right.

[44:50] Male Speaker 1: [inaudible]

[44:54] JEFF: That's right and that number is growing for that asset.

[45:03] QUESTION: [inaudible] [general question about web apps vs. native apps]

[45:33] JEFF: The question is, you have Apple where you have device specific software running on the device vs. an alternative approach where it’s more than client HTML based or server based. I would say two things. The first is that one of the reasons I believe Apple has creamed the competition is they have understood the importance of gaming on their platform and they were taking share away from the DS and the PSP as much as anything else and that's what's driving a huge portion of the engagement and awareness on their platform. When Microsoft rolled their phone and it didn't have native open GL support or some of the other support that a gamer would want it was really a phone. It didn't really matter; they were competing with Nokia with for who is going to finish in last place.

I guess part of me doesn't subscribe to this then client thing and case in point would be Palm LS, how did it do? Not so well. Market voted and they picked Apple. Granted Apple had deeper pockets, but I think the market really did vote here and not just Steve Jobs being great at marketing even though he is. I think if you look at the next layer down I think service based architectures are critical on mobile so I think the way to third the needle on mobile in my opinion and to have an immersive on device experience which is going to require open GL, customer entered graphics, and the rest but most of the logic is running in the cloud so you can tune things dynamically. For companies like ours that are data driven and trying to respond to everything going on with the product, if we have a month cycle for updating the cycle that's too long and it would be a month because we would have to change it for a client, do a vision test, take it to Apple, and pray the user downloads the update. If it’s a service based architecture I can tune that dynamically and very fast.

We build most of our content pipeline in the cloud. Content is coming down dynamically in the products, we're don't have to do product updates for content but we're trying to push even more logic up to the cloud for more real time tuning. We will never though build these goofy UIs that look like web browsers or look like bad flash games because I just don't think that that is what the market is voting for right now. One person’s opinion.

[48:25] Does the air interface speed affect your business or do you think about that? Referring to 4G, LTE, etc.

[48:39] JEFF: Yeah it matters a lot. It also matters that its unregulated, for us anyway because to my point on the services based architecture, but also our value proposition is all about the social experience which is dependent on me connecting to everyone else through this device; that has to go through the could. If that connection is not reliable, then I can't have a good experience. Speed matters too because think about the class of applications we might want to build with better bandwidth and lower waits. Think about the musical experiences we could create across the social universe if that was more reliable. It’s significant and you can even see it going back to our usage in mid-town New York; it doesn't work so well and we can see that in our data. So how hard is it for me to download the On a Boat background track because I want to create my version of On a Boat like TPain [sp?] did? That's about a meg of data, right? Just for that song. One of the more popular features we turn on TPain [sp?] is you can autotune your videos by pointing the camera and blasting it out. That's multi mec of data.