Hey! So TechCrunch Disrupt New York is just around the corner on May 19-23. So, what, you say, you don’t work here any more, right? (for the newer TechCrunch readers, I’m the guy who founded the site)

Well, yeah, I don’t work here any more because Aol fired me last year. Lots has been written about that. No need to rehash it all here. We’ve all moved on.

I mean, sure, some of the bad blood still lingers. But it’s mostly healed now. Like when I called Arianna Huffington a psychopath – I really did mean that in the nicest way possible.

Wait, where was I? Right, the point is that I’m back. At least for a few days in New York. Current TechCrunch chief Eric Eldon has graciously asked that MG Siegler and I be a part of the event, and we’re very happy to accept. Eldon even granted me posting privileges on TechCrunch so I could tell you myself.

And it’s going to be fantastic.

New York and San Francisco are the two signature TechCrunch Disrupt events. Last year well over two thousand people attended. There’s a weekend Hackathon, a packed agenda conference and the amazing Disrupt Battlefield competition where dozens of new startups will launch and fight it out for the Disrupt Cup.

We still have the Disrupt Cup, right Eric? I heard a rumor that Arianna claimed it for herself and has it up in her private bathroom suite at Aol HQ, but I never got a second source on that.

Anyhow, I’m genuinely excited to attend the event. MG and I will be doing on stage interviews with famous tech people in our signature styles, and helping to run the Battlefield.

I look forward to seeing you all there. This is going to be a whole lot of fun.

Get your tickets now.

There’s confusion – way too much confusion – about my status at TechCrunch and TechCrunch’s status at Aol after last week’s announcement that I was launching a venture fund, partially backed by Aol.

The multiple conflicting statements made by Aol on Thursday and Friday of last week are evidence of that confusion, but that isn’t the core issue. My employment relationship with TechCrunch and Aol is not the core issue. The only issue being discussed at this point, the only issue that matters, is TechCrunch editorial independence and self determination. Regardless of my role, if any, going forward.

I believe that Aol should be held to their promise when they acquired us to give TechCrunch complete editorial independence.

As of late last week TechCrunch no longer has editorial independence. Some argue that the circumstances demanded it. I disagree. Editorial independence was never supposed to be an easy thing for Aol to give us. But it was never meaningful if it shatters the first time it is put to the test.

We’ve proposed two options to Aol.

1. Reaffirmation of the editorial independence promised at the time of acquisition. Given the current circumstances, that means autonomy from Huffington Post, unfettered editorial independence and a blanket right to editorial self determination. To put it simply, TechCrunch would stay with Aol but would be independent of the Huffington Post.

or

2. Sell TechCrunch back to the original shareholders.

If Aol cannot accept either of these options, and no other creative solution can be found, I cannot be a part of TechCrunch going forward.

Apologies on the corny image. It just reflects exactly how we feel right now. And if this ends up being my last post on TechCrunch, that image is a cool way to exit.

Everything’s candy and roses for Dropbox today as the company simultaneously breaks out the expensive champagne and whispers “no comment” to anyone asking about the news. No matter, though, I’m right here cheering them on, too. That’s just how I roll. High fives, all alone, but there in spirit.

Anyhow, all this reminiscing about the young days of Dropbox and I kept coming back to this one story. It happened about a year ago, at the Lobby Conference in Hawaii put on by August Capital. I’ve attended the conference each year and it’s a blast. But there’s one big rule – everything is off record – and if I break that rule I’ll get banned from the event. So I spend the weekend somewhat under utilized. I still collect information quietly but don’t say a word until I get back to the real world, and even then I’m hazy on whether or not my sources were drunk on Mai Tais at the time of disclosure. This is all true – just look back at the big stories I’ve broken in the week that follows the Lobby conference each year.

Anyway, back to Dropbox CEO Drew Houston. A bunch of us are out at dinner. I’m sitting between Kevin Rose and Jay Adelson having their first heart to heart after Jay resigned as CEO of Digg. Kevin ate most of the sushi before it got down to me, and Jay drank all the alcohol before it made its way to me. So I was sitting there hungry and thirsty and listening to some of the best content I’ve heard in a long while and I was thinking if a permanent ban from the conference was worth it if I could just sneakily pull out my video camera and get a clip of Jay telling Kevin what he could go do to himself.

It was so tempting that I walked down to the other end of the table to see what was going on down there. Drew Houston had just gotten up to talk to someone, but he left his iPhone sitting on the table behind him. As a blogger that phone is a goldmine. I could grab it and start reading emails and probably gets ten great stories out of it before he could pry it out of my hands.

But overt physical/criminal acts to get information are frowned upon in our industry. So instead I just did what anyone would do. I opened his phone (no password!), calmly set a random password, and put the phone back down and went back to referee the Rose/Adelson “discussion.”

Houston sits down, checks his phone like everyone does. Looks confused because he can’t get past this new password I’ve added. He has that look of panic that says “oh my God I can’t access my own phone, all those emails and voice messages and Twitter replies, etc., until whoever did this undoes it.” He looks straight at me. I look down, not anywhere near him, and he still yells “Arrington you did this! Fix it!”

I have no idea why he just assumed it was me right from the start, but I was offended. So I used the Eddie Murphy It Wasn’t Me defense and denied everything. Luckily someone else jumped in and told him what the password was, leaving Drew in a better mood and me feeling utterly betrayed by my meal mates.

People now know that I do this a lot. Senior execs at AOL are a particularly fun group to add passwords to their phones. And people try to do it back. But one thing I have on my phone is a super awesome passcode, so I’m as safe as can be. Figure out your own trick, suckers.

Hot damn, I want one of those HP TouchPad tablets. Why? Because they’re sold out!

Perception of scarcity is a fascinating human condition. It’s one of the first things we learn as children – that running towards something is usually a guarantee that you won’t get it. But act like you don’t want something, and it’ll come running to you. The creation of the perception of scarcity is a winning, if shallow, tactic in most human relationships.

And finally HP has its day. In July HP couldn’t sell a TouchPad tablet despite having distribution deals with Best Buy and other major retailers. Apple had sucked all the oxygen out of the tablet market. HP offered its inferior product at the same price as the iPad. But consumers weren’t fooled. No one wants a Dodge at a Cadillac price.

But drop that price down to $100 and let people know that they better move quick to get one of the last TouchPads and the perception of scarcity kicks in. The units fly off the shelves. And I argued that HP should keep on making them and fulfilling that demand, even at a small loss per unit:

I say to HP – KEEP MAKING TOUCHPADS, as fast as you can. See what the demand curve looks like at $200, and watch the app developers suddenly get crazy excited about WebOS again. You may have a huge hit on your hands, and a bunch of lemonade from all those lemons.

Today the company made another smart move – they’re going to do another limited run of TouchPads.

Why? Some people are saying that HP probably has volume commitments and this is cheaper than just not building and selling the units at all. The company certainly may have made volume commitments, but my guess is they could have gotten out of those contracts given how much other business they send the factories. Also, why stoke the PR fire again when the TouchPad embarrassment is almost behind you?

Nope, they’re just messing with us, and taking another hit on the scarcity bong.

It feels so good.

People want us.

They really, really want us!

The company is already hinting that the TouchPad may live again [editor's note: awesome]. But while they’re figuring that out one way or another, what better way to keep everyone excited than to create just a few more TouchPads (scarcity!) and sell them in “at least a few weeks.” Now everyone is waiting, with breath appropriately bated, for those hard to get new units. The press will try to figure out the date and location when the TouchPads go on sale. Previously unenthusiastic retailers are making anxious calls to try to lock down as many units as they can. I expect Robert Scoble will be waiting out front of Best Buy the day before, along with a few other hard core TouchPad fans.

I can sense the giddiness at HP.

Here’s another interesting data point. TouchPads are going for about $300 on ebay right now. That’s a market clearing price – people who have them need to get rid of them fairly quickly, and they seem to be doing just that at around $300. Which just happens to be about the manufacturing cost of the TouchPad.

So hell yes they’re going to keep making these things. They can dominate the mid market for tablets, the place Android was planning on settling in at after their first prime time push. After Q4 HP will announce another batch of TouchPad’s will be built, just in time for the holidays, to meet more of that pent up consumer demand. Or the PC spinoff of HP will do it. Someone will. Because selling a device at cost and then bringing in the revenue through the app store is a proven and lucrative business model.

This is the best marketing money can buy. HP finally has a hit product and people lining up to buy it. It doesn’t get any better than this.

Dropbox is finally moving to close that massive valuation venture round we’ve been talking about all summer. According to multiple sources, Index Ventures will lead the round, which values Dropbox at around $4 billion.

At some point I hope that the entire story comes out about this round. Nearly everyone in Silicon Valley has taken a look. There was early interest at valuations of $8 billion or more, although one source says that it may have been firms who threw out huge numbers just to get a look at the company’s financials. As of a couple of weeks ago I had “firm” information that the round would close at $5 billion or more.

As far as I can tell, that information was accurate at the time. But the valuation ended up lower. Why?

I’m hearing two reasons. The first is the U.S. government debt uncertainty and general financial market uncertainty, which has spooked VCs. The other reason, say sources, is that Dropbox really wanted the involvement of certain investors, and they needed to drop the price to get them on board.

There’s a relatively large investor syndicate, say our sources, with involvement from a variety of firms beyond Index.

We’ve also spent a lot of time trying to track down Dropbox’s revenue numbers, a closely guarded secret at the company. Speculation was that they’d hit $100 million in revenue this year. Our best guess based on discussions with sources is that revenue will be more like $30 million in 2011. But this is still largely a guess.

More as this develops. Prior to this round, Dropbox had raised just $7.2 million.

Ben Elowitz (@elowitz) is co-founder and CEO of media company Wetpaint, and author of the Digital Quarters blog about the future of digital media. Prior to Wetpaint, Elowitz co-founded Blue Nile (NILE). He is an angel investor in media and e-commerce companies.

Next year, search advertising will be a $15 billion market in the U.S. alone, growing by 14 percent, according to eMarketer. And, if Facebook can capture half the share of that market that Google has today, it could easily add an extra $25 billion or even far more to its value.

For most any CEO who could have even a modest chance of succeeding at it, that payoff would be reason enough to take a serious look at entering the search category. And yet, while I’m sure he wouldn’t scoff at the extra revenues, profits, or valuation, I suspect that Mark Zuckerberg finds something else far more motivating than just increasing the financial value of his company.

And that’s what will propel him next year to make a completely disruptive entry into the search category.

So if it’s not for the financial value, then why am I so certain that Mark Z. will make a play for Google’s home turf?

It’s because it’s so irresistibly good for his users. And that’s the most important principle that seems to guide his product development.

The Five Reasons For Facebook To Enter Search

With that in mind, here are the five specific reasons why Facebook should enter search next year:

1) To make Facebook the ultimate home page. Consumers make Facebook their home base. Half log in every day; and users come to Facebook 70 percent more times per day than even to Google. They stay twice as long as even users of Yahoo’s vast network of email, content, and more. Facebook has become the Connected Web’s de facto operating system. But right now, its “start button” is limited to what other people put in your newsfeed. Part of being home base is being a launching pad to go anywhere you want. So Zuckerberg will need to give users a great connection to the rest of the Web – whatever their intent.

2) To fix a broken feature. Facebook has a search feature today (powered by Bing); and a few people already use it for Web-wide search, even though it isn’t very good. It needs significant upgrading, and Zuckerberg knows it. Having a feature this important be this incomplete creates an unacceptable user experience. It must be fixed.

3) To improve people’s life online. Facebook has an enormous data set that it can use to deliver better search results than anyone on the planet. Facebook can see everything that Google can see in terms of pages and links, but with a whole extra dimension of human connection that is impenetrable to Google. Facebook knows what your friends like, and what people like you like. And it knows the difference between real interest and spam. Translating that knowledge into great results will improve online life for his users.

4) To fully connect the world. More than anything, Zuckerberg and his company’s DNA are all about providing services to connect users to each other and, increasingly, to the world at large. Serendipity and sharing aren’t enough: sometimes people know what they want to find. Facebook must have a search feature to fully enable connection.

5) To add to his immense data set. Search will not only help users; its users will help Facebook. Specifically, it will provide Facebook with even more data about what people want so Facebook can further personalize itself for everyone. Go ahead and cue the creepy privacy music, but remember that so far most users have been happy to make a privacy tradeoff to get valuable personalized service.

With Facebook Connect, Open Graph, and Like buttons, Facebook has already shown its vision to fully connect to the rest of the Web. The next step is to help people better access it.

Facebook: The Social Operating System For Connected Lives

Facebook began as a social application, but it’s now in the process of becoming a Social Operating System for the Web at large. Offering world-class search is the next step in its evolution as that “Social OS.” The Web is now organized around connected people, not documents – and Facebook is the OS that links those people together.

Once fully connected, can you imagine how Zuckerberg must think about a Web all wired-in through Facebook’s central hub? He’d know the time spent on every page; the usefulness of every link; the patterns of every user. He’d have a real-time system that provides feedback on every recommendation. You know what’s cooler than a billion connections on the Web? How about a quadrillion!

The value of that data will be immense in making recommendations to users, serving advertisers, refining search itself, and enabling next-generation social applications. It will give Facebook a competitive advantage over every other Internet company in building a map of where the gold is buried – in the form of the content each individual user wants – among the trillions of pages on the Web. But more importantly, it will allow Zuckerberg to serve his users.

“Social Search” Is More Than Just Links From Your Friends

The idea of a socially-powered search is not brand new for Facebook. Bing and Blekko have both incorporated features that bring your friends’ Facebook content into the search results. And while that is one modest way to improve the search, its impact pales in comparison to the full potential of what Facebook can do to help you by fully exploiting its social data set: It can individualize search results just for you, by using not only data about you and your friends, but by using the full dataset of people you haven’t even met yet.

Let’s look at it competitively. Google and Bing have, with limited exceptions, held themselves to the standard that the results should be the same for everyone because they work in an anonymous environment. A friend from Microsoft tells me that Bing has a rule that, with the exception of bucket tests, the top ranked result must be the same for everyone. This rule, he says, was copied from Google – where it fits well with Google’s increasing positioning of itself as the great defender of identity control, compared to Facebook’s ethos where everything is public. But that differentiation hands Facebook an incredible opportunity: in the Facebook environment, it’s not only accepted but expected that everything you do is customized for you alone.

Can you imagine the power of combining Amazon-like personalization with Facebook’s deep dataset to offer better results?

Facebook Can Redefine Search in a Social World

That’s why beyond just improving a search algorithm, Facebook’s greater opportunity is in redefining the category. The last decade of Web use has been defined by Google’s clean white splash page with a single query field, and the 10 blue links which follow. But just as that approach from Google displaced the prior generation’s directory pages, it’s time for a breakthrough experience. And Facebook is the natural player to provide it.

I’m sure the engineers at Facebook are already visualizing what search could be in a fully connected world. Searches could be proactive, prompted by items shared by friends, rather than awaiting a text field completion. Searches can favor brands and publications that you like, or your friends like. But most importantly, searches can be predicted based on people like you, people who are located where you are, or people with similar interests, profiles, and behaviors, without you ever even knowing them. All of these are ways that Facebook can fundamentally redefine search, thanks to its knowledge of each user’s identity, interests, and behaviors.

How It Could Happen in 2012

But building a search engine that takes (a difference-making) advantage of the social graph takes lots of time and money, as does building a new operational infrastructure, Web crawler, and advertising engine to support it. And, even more significantly, this is one where Zuckerberg will need to get the privacy implications right from the start. Facebook is currently building its rep with major advertisers on its social network – and that’s a great start, because that will provide a captive customer base to transition into its search engine right at launch.

A competitive search engine is one of the most ambitious projects you can imagine – the degree of difficulty is mind-boggling, and the cost is hundreds of millions or more. For Facebook to best Google, it would need to catch up in substantial ways before it could shoot ahead of the leader, even with its valuable dataset. But that’s only an impossible challenge if it has to do it all alone.

And Facebook doesn’t have to.

It already has an alliance with the #2 player in search, Microsoft. And – in the way of “the enemy of my enemy is my friend” – it has a common interest in outperforming Google. And Facebook and Microsoft have enough separation between their businesses that they could complement each other rather than compete. Indeed, Facebook’s increasing strength in its advertising engine could be a huge lift to Bing’s struggling monetization – offering hope of raising Bing’s monetization toward Google’s levels. The two truly are more valuable together, and it’s no surprise that smart people have begun to speculate on a Bing-Facebook combination, a step beyond a partnership. Working with Bing for its search entry could save Facebook billions of dollars of initial R&D and speed its entry into the category by years – and by many dozens of engineers. And any agreement they’d sign would likely still give Facebook the option to create its own search engine down the road.

The Chilling Threat To Facebook’s Enemy

Regardless of how Facebook structures its efforts – and with whatever degree of help it gets from Microsoft – it will be able to create a search capability that will be significantly different from anything we’ve ever seen. And it will shake the tectonic plates underneath Google’s Mountain View headquarters, even as it vies to earn users’ adoption with better, more personalized results.

Google will not perish in the digital earthquake without a fight, though. Its recent Google+ launch, for example, shows just how boldly Google intends to enter Facebook’s home territory. That, of course, makes it even more imperative for Facebook to counter-invade by pushing into search.

Looking forward, it’s clear that search and social won’t always occupy separate spaces. Indeed, for consumers, over time, they will converge; and the blended (or, just as likely, reimagined) product that emerges will serve as a home base that will serve as a jumping-off point to everything that’s important and relevant on the 21st century Web.

It’s fascinating, and it’s all about to unfold. In the meantime, while Zuckerberg quietly forges ahead, and readies Facebook’s game-changing search entry, Eric Schmidt, Google’s former CEO, is publicly lamenting lost opportunities to catch Facebook. The diverging fortunes of these two digitally defining companies could not be more apparent right now.

Y Combinator had its semiannual demo day earlier this week, where many of the 63 startups in this batch showed their stuff to investors and press for the first time. It was the largest demo day so far. And they did the same show two days in a row so more people could come.

What struck me about the day wasn’t that so many companies were launching, or how awesome more than a few of them were. Unlike most events like this, the audience wasn’t mostly paying attention to their phone or laptop or tablet. It was more like the audience at a movie theater – quietly watching with their full attention. People like Marc Andreessen, Roelof Botha, Ashton Kutcher, Demi Moore, Ron Conway and others there, too. And people didn’t flock to them like they usually do. It was all about the new companies.

It hasn’t always been like this. Just a few years ago when I started TechCrunch new startups launching tended to do it in my living room or back yard during one of the monthly parties at my house. I’m being quite serious – see this old post, for example. That’s my living room, and those pictures show companies launching right there. Once the parties got too big we moved to other venues – the last one had 600 people and my house was a wreck afterwards. Someone was coding on top of my washing machine, and a very stoned VC was passed out on my couch because he couldn’t find his car keys (turned out they were in his pocket, but we searched my yard with flashlights for an hour).

Things have changed. Gotten bigger. Lots more money, which means lots more PR people, VPs of business development and marketing managers. By 2007 I was hoping for a downturn. A line I remember writing: “Times are good, money is flowing, and Silicon Valley sucks.”

But also things have gotten better. Mobile has exploded. Big companies are hiring/buying like crazy to avoid the Microsoft disease and stay relevant, and cloud services like Amazon Web Services have, again, drastically dropped the time and money costs needed to get an idea from your brain to launch. In the late 90′s it cost $3 million. In 2005 it cost $100,000. Today it costs $15,000, with money left over for lattes.

It’s not just the cost of launching that’s changed, either. Companies also routinely piggyback on Facebook, Twitter and Google for new users, pre-packaged with lots of demographic and other data. Both ends of creation process have become exponentially less expensive and difficult.

Which means more ideas get tried. It seems like the same percentage – about 10% – end up doing something interesting. So we have an explosion of creation and a steady failure curve. The result is lots and lots and lots of more useful stuff being built.

I’ve written about my thoughts on entrepreneurism before. This post – Are You A Pirate? – really sums up my feelings there. More and more people are giving it a serious try. With costs so low and with companies like Y Combinator to provide further platforms for mentorship, funding and marketing, There’s a bit of a perfect storm going on.

When does it end? What’s driving a lot of the demand are Google, Facebook, Zynga, Twitter and many other companies being aggressive about acquiring these companies. The money comes in and much of it immediately gets recycled back into new startups and new ideas that then go on and compete, fight, win and lose in the arena of entrepreneurism.

It’s a strikingly beautiful thing. Chaotic and at times messy, but beautiful. Entrepreneurism unbridled.

There are many things that keep Silicon Valley disruptive. The most important thing is fresh blood – new people with lots of energy, new ideas and absolutely no concept of the “way things are done.” The kind of person who sees a wall and thinks “Do I climb over it or do I tear it down,” but never thinks “Oh, I can’t go past, someone tell me what to do next.”

Y Combinator and others have found a way to attract these types of people, and then give them everything then need to succeed or fail (and then try again). It was one of those moments that really made an impression on me. Everything is just getting started. We are still at the beginning. We’re in for the ride of our lives.

Image credit: George L Smyth

On Sunday we broke the news that Skype was acquiring group messaging service GroupMe. What we didn’t know was the price, and neither company disclosed any of the terms of the deal other than that GroupMe would remain a standalone brand for now, and the team would stay in New York.

A widely spread report said that Skype paid as much as $85 million for the year-old company. We’ve heard this number is a bit high, and includes an earnout or deferred payments. What’s the real price?

Our sources close to the companies say the initial payment for GroupMe is $43 million, and deferred payments (or an earnout) can get the GroupMe shareholders as much as $68 million over four years. The founders will receive another few million dollars as part of their long term employment agreements.

Why the difference? No idea. But I have a high degree of confidence that Skype will pay somewhere between $43 million and $68 million for GroupMe. Which is one heck of a win for the founders and investors, who put $11.5 million into the company.

As an aside, when we add estimated acquisition prices to CrunchBase, we usually put in the higher number instead of a range. I like being optimistic, and we can always edit it downward later if new information becomes available.

It was only a year ago that I first wrote about Greplin, the “other half of search” for you online life. It’s an incredibly useful search engine that indexes your online email, Facebook, Twitter, LinkedIn, Calendar, Dropbox and other stuff (22 services are currently supported). Greplin is a single search box for all of this, and it’s fast.

Until now, though, you had to use the HTML5 site for mobile use, there was no dedicated application. If you’re an iPhone user, that’s now changed. Android and other users have to wait a bit longer.

Why the need for a dedicated app? 20 year old CEO Daniel Gross says they needed an app to add in their most requested features. The goal is to reduce typing by anticipating what you need – if you open the app on a way to a meeting, Greplin can use your location and the date/time to make an intelligent guess you want an address or phone number relevant to that meeting, and then give it to you.

The Greplin iPhone app’s predictive accumen is impressive. When Gross opened the app in my office yesterday “Arrington” was the top suggested search. The app knew he was having a meeting with me per his calendar and emails, and knew a search for me was likely. After clicking my name there were additional refinements to find a phone number, or my location, etc.

You could do all that in email or calendar anyway, but Greplin makes it so much easier. Instead of opening email on my phone and searching for the name of the person I’m meeting and then scrolling through an email or two to find a phone number or address (and probably getting chastised by a rabid Googler for typing while driving), Greplin just seems to know what I want and put it front and center for a click. It then highlights relevant information from emails as well.

It’s those two features – suggested searches and highlighting – that make the app so easy to use. It’s rare that a new app can get a coveted “must have” spot on my phone, but Greplin is clearly that. Once it’s on Android, that is.

Gross’ original idea for Greplin stemmed from the idea that “people are having more and more information thrown at them and we’re here to make that manageable.” Greplin already does that. Greplin’s iPhone app does it even better. And if it saves the life of even one crazy Googler who jumps in front of your car, it’s worth it.

Greplin has raised just under $5 million from Sequoia Capital, SK Telecom Ventures and angel investors.

Back in the Summer of 2008, when there was still a glimmer of innocence and belief in the fundamental goodness of people in this young blogger’s mind, I decided that I wanted a touchscreen tablet. Something like the screen side of a Macbook Air, plus a touch screen. It would mostly be for “couch” computing, I said. although I also meant “bathroom” computing. Here’s that post, titled We Want A Dead Simple Web Tablet For $200. Help Us Build It.

At the time there was no iPad, or hope of one. Apple had ditched the idea, we’d heard, after unsatisfactory testing of a device with employees. So our choices where hugely expensive and near-useless tablets like the Dell Latitude XT. Meh.

So we jumped in headfirst into building what we eventually called the CrunchPad. That project turned into a trainwreck and the lawsuit is just finally getting ready to go to trial.

But one thing I was very right on is the huge demand for a less expensive tablet computer, even in today’s iPad world. HP’s sale of the TouchPad for $100 just confirms this – people will buy millions and millions of these things even if it doesn’t have an Apple logo on it.

HP certainly can’t spend $318 to build a TouchPad and then sell it for $100. But HP (or someone) could build a perfectly awesome capacitive touch screen tablet running on decent hardware for less than $200. We worked with enough factories in Taiwan to understand that. Our cost estimate for a great touch screen was in the $60 range, for both the module and the LCD. HP’s super awesome display is costing them more than twice that. They’re also spending $50 on memory, something we were mostly leaving out (storage? Cloud.).

If HP were to knock the screen quality down just a bit and figure out a cheaper storage solution, the BOM (bill of materials) on their device could be significantly lower than $200. Normally they’d retail that at $400 or more. But if instead they sold it for cost, and sold millions of them, a very robust developer network would pop up around WebOS. See Apple and Google for great ideas on monetizing apps on devices by grabbing up to 30% of revenues and also trying to control app advertising.

HP tried to build an iPad killer and they failed just like everyone knew they would. No one challenges Apple head on in a computer fight and wins. But if they had sold a much cheaper tablet they would have (as we see now) nearly unlimited demand for those tablets.

I say to HP – KEEP MAKING TOUCHPADS, as fast as you can. See what the demand curve looks like at $200, and watch the app developers suddenly get crazy excited about WebOS again. You may have a huge hit on your hands, and a bunch of lemonade from all those lemons.

Or perhaps some enterprising young factory or two in China will figure out an inexpensive device and license WebOS from HP. Either or is fine with me. But as long as Google keeps trying to match Apple on features and price, there’s a huge gaping hole filled with unmet demand for a tablet computer that you can use to look up stuff on Wikipedia while you’re watching tv, and maybe check emails during commercials. America is a couch culture. Embrace it, HP. Embrace it.

Thrive Capital’s first venture fund was just $10 million, but the fund made 27 investments and more than a couple look like home runs. That fund, closed in 2009, holds stock in GroupeMe (acquired by Skype), Greplin, Art.sy, Warby Parker, Zaarly, Fab, Bank Simple, HotPotato (acquired by Facebook), KickStarter and OnSwipe, among others. Not bad for the sole partner, 26 year old Joshua Kushner, who’s also a cofounder of embattled but hugely successful Vostu.

Now Kushner has raised a second, $40 million venture fund. But unlike most other funds, Thrive also has a co-investment structure with some of their limited partners that enables the fund to write much larger checks. The effective size of the fund is much larger, possibly up to $100 million.

Thrive Capital is based in New York. The fund is not responding to press inquiries.

Skype will acquire group messaging service GroupMe, a service that was born at a hackathon at TechCrunch Disrupt in New York in 2010. GroupMe was founded by Jared Hecht and Steve Martocci.

The terms of the deal, including price, aren’t being disclosed.

Just a couple of months after TechCrunch Disrupt the company closed a $850,000 round of financing from Betaworks, SV Angel, First Round Capital, Lerer Ventures and a number of prominent angels. Early this year the company raised $10.6 million more from Khosla Ventures, General Catalyst and previous investors.

GroupMe allows you to create on the fly private phone groups with others, and then send text messages throughout the group and set up free conference calls.

Skype CEO Tony Bates says that he’s been talking to the company for a few months, at about the same time Skype was in negotiations to be acquired by Microsoft.

The Microsoft transaction is still pending.

They’ll keep GroupMe as a standalone brand, Bates says, and look for integration points over time. “The group messaging space in general is one of the most important markets for Skype,” he told me via a Skype video call earlier today. He added: “GroupMe creates a very sticky instant feeling. Like Skype, it is an everyday interactive form of communication. Skype’s goal is to get to 1 billion users. Mobile is the place to do that.”

GroupMe, which has twenty employees, will remain in New York.

Tax the rich. Those bastards.

I get why people who aren’t rich hate those that are. No one really cares what they have, they only care what they have relative to others. When there is inequality, and there always is, even the hyper intelligent call for a redistribution of wealth. It’s an enduring longing for us as a species, and no evidence to the contrary will convince people it just doesn’t work in any large group.

What I really didn’t understand until recently though is why so many rich Americans seem to loathe their richness as much as everyone else does. Many in Silicon Valley want to tax the rich into the middle class and let government spend and spend and spend. The super rich tech elite flock to Obama, joining in the call to screw the rich as loudly as all the rest.

Then I figured it out. As I wrote then, the super rich won’t mind at all if we “tax the rich” as it’s currently defined. That’s because people who are super rich don’t really pay taxes. They pay taxes on this year’s income, and capital gains on accumulated wealth. But the only “tax” that can ever touch what they’ve already made is inflation.

That’s why a man worth $47 billion dollars can pay just $6,938,744 in federal income taxes and not be accused of a crime. In fact, he can boast about how little he pays, and ask to be charged even more.

That man is Warren Buffett. And his article in today’s NY Times, titled “Stop Coddling The Super Rich” is a huge pile of manipulative garbage.

The super rich love to talk about higher taxes on the rich because it’s a competitive barrier protecting them from competition. If the people making a lot of money today have to pay much higher taxes, they probably won’t ever accumulate enough wealth to be “super rich.”

Now if you really want to screw the rich, start talking about a wealth tax. It won’t save the economy but it’ll certainly serve to even everything out. Buffett wants a higher tax rate on himself and anyone making $1 million or more per year. If you doubled the tax rate on these people, someone making $1 million a year would lose another $380,000 to the government.

Buffett calls for an increase in all types of taxes – income, dividend and capital gains. That would be a nice triple layer of protection against any newcomers, and still preserve all – 100% – of the $47 billion he’s accumulated until now.

Buffett is just fine with big new taxes on the rich because those taxes never touch all the under-taxed wealth he’s accumulated over the decades. He talks about how he’s benefited for decades by being under taxed, but is only willing to pay more in the future. That’s like a steroids-ridden baseball player declaring that steroids are bad and from now on no one gets to take them. But paying for past sins? Shhh.

I say if Buffett wants higher taxes, Buffett should get higher taxes. Take 50% of his wealth immediately. And everyone else who’s super rich. Hell, take 100% of everyone’s wealth over $1 million. That’ll even the playing field. We’ll do it again in ten years. Some sneaky people will figure out a way to cheat the system and accumulate more wealth than everyone else, but we’ll knock ‘em back down to earth again.

Think that’s crazy? In the late 90s Donald Trump proposed a one time 14.25% tax on the net worth of individuals and trusts worth $10 million or more. The goal? To pay down the national debt, and shore up Social Security.

Wealth taxes aren’t new, they’re just new here in the U.S. So the next time some super rich person stands up and says they must pay more taxes, ask them how serious they are. And then ask them how they’d feel about a wealth tax every year.

Rich people are very good at staying rich. And Warren Buffett is the smartest rich person I know. That’s why he’s able to say feel good bullshit about how he should be paying higher taxes when he has absolutely no intention of letting the government anywhere near his real money.

As for me, I think the government should be starved of income and be forced to spend money where it’s supposed to – defending the border, establishing a trusted currency, and protecting property rights. Whenever they muck around with the other stuff everyone gets poorer. We need to let people dream of getting disgustingly rich, and then let them go out there and do it. After that, we celebrate them so that more people get the idea of getting rich, too. It’s what makes Silicon Valley work. And everyone benefits, even the people who don’t end up rich.

ps – If you like the image above, buy the tshirt here. Although really, they’re charging way too much. They’re probably getting filthy rich selling those tshirts, the bastards.

WhaleShark Media, which just announced an investment by Google Ventures, continues to acquire coupon sites around the world. Tomorrow they’ll announce the aquisition of eConversions, Ltd., operator of the web sites VoucherCodes.co.uk in the UK and Gutschein-Codes.de in Germany. Vouchercodes is the UK’s largest coupon site, says Whaleshark.

The size of the acquisition isn’t being disclosed, although we’ve heard it’s around $40 million in cash and stock. VoucherCodes is currently generating around $15 million in revenue, we’ve also heard from sources, although the company wouldn’t confirm that either.

Whaleshark has previously acquired six other coupon sites, including deals2buy, coupon7, couponshare, cheapstingybargains.com, deals.com and retailmenot. We estimated the company’s revenue prior to this most recent acquisition at around $50 million/year.

Whaleshark CEO Cotter Cunningham says they were particularly attracted to eConversions’ email marketing prowess. The company has more than four million subscribers to its weekly email newsletter, and Cunningham wants to use that expertise to leverage its U.S. brands.

eConversions was founded by brothers Duncan and Max Jennings in 2004 and had raised no outside funding.

We’ve been tracking the twists and turns of the Dropbox mega funding round feeding frenzy for over a month now. In July Sarah Lacy wrote that they’d be raising $200 million to $300 million at a $5 billion or higher valuation. A week ago MG Siegler wrote that the auction process was over and Dropbox was considering bids as high as $10 billion.

The company has now chosen which investors will lead and participate in the round, we’ve heard from one of our sources. The final valuation will be less than $6 billion, and we’ve heard that the original estimates of a $200 million – $300 million round are still accurate. We do not yet know who’s leading the round or otherwise participating, but that information will probably become available soon.

In the end Dropbox didn’t choose the investor with the highest valuation bid, we’ve heard. Look for the round to close and be announced in the coming weeks.

Ah, litigation. Nothing ever really gets done, but the lawyers get paid, and there’s always drama. The Vostu v. Zynga case exemplifies all of this. And it just got weird to boot. Today a U.S. judge just told a Brazilian court that they can’t shut down a Brazilian startup. That’s definitely a new one for me.

Background: On June 16 Zynga sued Brazilian clone Vostu in California for stealing Zynga’s games. Vostu’s initial press response was to (1) point out that the two companies have overlapping investors, and (2) make note of Zynga’s less than pristine past when it comes to respecting others’ intellectual property. I called that the “I know you are but what am I defense.”

That’s always a crowd pleaser, but courts often hold themselves to a higher standard. So last month Vostu filed a response to Zynga’s lawsuit. That response also brings up another defense – that the lawsuit is retribution by Zynga over a failed attempt by Zynga to create a “strategic relationship” with Vostu. That should have been the end of the news cycle for a while – U.S. courts never really decide anything, so a year could go by before we heard about this case again.

Everything above is standard lawsuit behavior. But Zynga’s next move was a good one. They filed another lawsuit, this time on Vostu’s home court – Brazil. They also sued Google for distributing the games (notably they did not sue Facebook, their golden goose). A Brazilian judge quickly granted Zynga’s request for an injunction. Vostu had to shut down its games in 48 hours.

A Brazilian judge siding with a U.S. company against a local startup? No one saw that coming.

But wait…there’s more. Today U.S. District Judge Edward Davila issued an order restraining Zynga from enforcing the Brazilian decision.

Despite the fact that “Brazil has an important interest in enforcing its copyright laws,” says Judge Davila, they don’t get to do so. “Zynga—which chose the U.S. forum first—now seeks to enforce an injunction it obtained abroad that would paralyze this Court’s ability to decide this case.”

So which argument wins? Davila’s opinion is that his court’s desire to retain the ability to decide the case outweighs Brazil’s right to enforce its copyright laws. His words, neatly spliced and moved around of course, but not mine.

With this decision, I’m officially no longer really interested in the merits of the case. What I’m fascinated with is how these two courts are going to thrash out who gets to decide what. I sort of agree that this Brazilian court may have acted rashly in giving Vostu 48 hours to shut down. But they definitely get points for being awake and making decisions quickly, just days after the Brazilian lawsuit was filed.

U.S. courts would never move that fast. Unless, apparently, someone’s trying to usurp their jurisdiction.

My favorite part is near the end where Judge Davila, after trashing the Brazilian court’s decision, then goes on about how this isn’t meant to cast doubt or express opinion about the wisdom of the Brazilian court.

It deserves strong emphasis that a TRO would not enjoin the Brazilian court at all. Nor does a TRO from this Court cast doubt on or express any opinion about the wisdom of the Brazilian proceedings. Rather, a TRO would enjoin Zynga…from flouting this Court’s jurisdiction. The fact that the flouting mechanism involves foreign courts is incidental.

It’s just such a wonderful way to rub it all in. No offense, Brazil. We’re not doing this to make you look bad. That’s just “incidental.”

The full order is below.

If you’re like me you’ve thought about digging up old 8mm film, or VHS tapes, and converting them to a more modern format. There are a lot of services that fulfill this need – just do a search for “media conversion” or something similar and you’ll see dozens of services. Most of the sites don’t inspire much confidence in sending them priceless childhood videos, though. And generally they focus on getting media to DVD and mailing it to you.

Omaha, Nebraska based PeggyBank stands out. The company mails you a pre-addressed box for your media. You can include anything – photos, slides, negatives, 8mm video or VHS. They’ll convert it all, put it on their site for you to view, and return the original media. You can then share links to the digital files, or download them to keep on your hard drive, burn to DVD or CD, etc.

Here’s an example video from 1958.

PeggyBank just launched in March, and uses Kaltura to deal with video streaming. The service is pretty slick for a new startup on a shoestring budget.

What’s most surprising is how well they’re doing. The company is cash flow positive and is generating over $50,000 per month in revenue. Average order size is in the hundreds of dollars.

How’d they do it?

CEO Jim Simon has focused exclusively on daily deal sites to generate traffic. He says he’s tried Groupon but the revenue split and the onerous terms don’t really work for him, but that services offered by the New York Times, the LA Times and other newspapers are perfect. They address an older audience, he says, with lots of old pictures and movies they’d like to see online. And they promote deals aggressively in print, online, via email blasts and on social networking sites.

So far he’s relied almost exclusively on these daily deal sites to generate traffic. And because so many people include lots of extra media he’s able to make a tidy profit.

There’s lots he wants to get done now that the business is off the ground, though. Streamlining operations to allow for scale is a priority, as is building out a tech team to build a more robust sharing and streaming product for users.

There’s no innovative tech here. But there is a plucky young startup headquartered in the middle of nowhere that’s created a nice product, is marketing it smartly and may just turn into a big business.

The economy is a mess. And while venture capital is still flowing like whiskey during the Prohibition, it’s not right for every business. A year ago we wrote about the birth of a new type of investment fund, Revenue Loan. The experiment has worked, says founder Andy Sack.

They’re expanding it, changing their name, and offering $500,000 to the right type of startup.

First, the basics. Revenue Loan is now Lighter Capital. They’ve completed eight revenue loans in the last year. The companies received $100k – $500k each in a loan. They then pay a small (3ish) percent of their monthly revenue to Lighter Capital until the initial capital has been paid off 3x-5x. Sound expensive? It can be a lot cheaper than equity venture rounds in the long run for the right companies.

Usually Lighter is looking for startups with real revenue and growth. But in at least one case they invested pre-launch. Check out Tomato Battle, where thousands of people are paying $50 to have a massive tomato fight. You’ll probably see me at the next one throwing tomatoes along with everyone else.

Tomato Battle was a new type of deal for Lighter Capital. They were pre-revenue, so it wouldn’t normally qualify. But The Lighter team got comfortable based on the team behind the events as well as the early buzz on Facebook. So, they made the jump.

Lighter says they’re going to invest up to $500k in a new company this month. If you think you can win, details are here.

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DJ Patil, the former LinkedIn Chief scientist who recently left Color Labs, now has a new job. He’s the “Data Scientist in Residence” at Greylock Partners, working alongside his old colleague, LinkedIn founder Reid Hoffman.

This title’s a new one for me. Venture firms regularly hire experts in particular areas who can help their portfolio companies, like Bessemer’s “Designer in Residence.” And firms also hire lots of “Entrepreneurs in Residence” – successful executives and entrepreneurs who need a place to park for a while as the figure out what their next company will be. But Data Scientist in Residence? Never heard of it.

Patil tells me it’s a hybridization between a standard entrepreneur in residence job and the executive in residence roles where experts help portfolio companies. Eventually he hopes to join or start his own company. In the meantime, he wants to work with Greylock’s portfolio companies to help them leverage data into new products and services.

Who’s he most excited about? Airbnb, Groupon and Cloudera, he says. He’s already worked with Cloudera.

Greylock has been talking about the importance of data for a long while. See this interview with Reid Hoffman and Tim O’Reilly from April this year. You can also listen to Hoffman talk about data at SXSW here. And you can see first hand how the company looks at data assets when making investment decisions here.

Hoffman calls this his Data is Web 3.0″ thesis. And he talks about that a lot in a blog post announcing the hiring of Patel:

Greylock Partners Welcomes Data Wizard DJ Patil

I am happy to announce that DJ Patil has joined Greylock Partners as Data Scientist in Residence from Color, where he was Chief Product Officer.

DJ and I have been working together to solve data problems for years. DJ led the build out of the data and analytics group at LinkedIn. Indeed, our many conversations about data led me to my “Data is Web 3.0″ thesis, which I presented at South by Southwest this past March. In short, the idea is that people generate a massive amount of data when they use Web 2.0 applications. Creative companies and organizations can use that data as a foundation for a new set of unique and innovative products and services. DJ’s team proved this thesis at LinkedIn by building some of the most highly trafficked applications at LinkedIn, including People You May Know, Who’s Viewed My Profile, Career Explorer and Skills.

We at Greylock believe that data strategy will be a key ingredient to the success of most high-growth tech companies today—especially those building products and services in software, Internet and mobile. Now is the time to leverage data in new ways to create useful, fun and engaging experiences. Many of the companies we support have built data functions into their organizations. My partner James and I wrote a blog post in January about the Power of Data as a way to explain why we invested in Groupon.

The more we talked about this theme internally at Greylock, the more our conversations turned to how we can use it to help our companies. A few months ago we pulled together a hands-on data summit for our companies and other friends, which we held at LinkedIn. Speakers and attendees included data, product and engineering talent from Cloudera, Facebook, Google, LinkedIn, One Kings Lane, Pandora, Redfin, Rich Relevance and Zynga. DJ gave a talk on “data jujitsu” and helped us think through the right content that would make for a compelling and useful workshop.

The summit was a hit, and showed us that our companies have strong appetites to learn more ways to leverage data as a competitive tool. Finally, we realized we needed an in-house expert. DJ had already demonstrated his abilities in building new and innovative data practices at LinkedIn and it was clear to us that he was the right person to help us with this on a full-time basis.

DJ is the natural entrepreneurial leader for this work, as he has built new groups around his ideas and worked with start-ups in multiple capacities. At LinkedIn he worked closely with Greylock-backed Cloudera to implement Hadoop and sponsor technologies like Voldemort, Askaban and Kafka. He has held roles at Skype,PayPal and eBay. As LinkedIn’s Chief Security Officer he partnered with Facebook, Google, Twitter, Zynga and others to take on hackers, spammers and fraudsters. He has also done strategic advisory work for the U.S. Department of Defense, the Department of Energy and Civilian Research and Development Foundation.

In his new role DJ will help Greylock-backed start-ups to learn the art of data jujitsu. Together they will build core competencies and teams around data, conceive new data strategies to optimize decision-making and create new user-facing products.

I’m looking forward to partnering with DJ again. Welcome, DJ!

–Reid

I’ve said this before, but working at AOL is my first experience working at a “big” company. I’ve watched, mostly with amusement, as a Dilbert cartoon has come to life around me. Some of the policies and bureaucracy are useful (I’ll think of some examples, just give me a second).

Some are hilarious (forced drinking events). Some are really annoying. For example, every couple of weeks I get an email titled “AOL Standards of Business Conduct Training” with the demand “As a new employee, you are required to complete one hour of web-based training on the Standards of Business Conduct (SBCs).” The only problem is that I need to have access to the AOL network to complete the training, and they’ve never given me access so that there’s an information barrier between me and the company.

But there’s one weird policy that really stands out. AOL is absolutely crazed about questioning employee expenses. Our CEO Heather Harde deals with the brunt of the pain involved in getting expenses approved. But I’ve dealt with my fair share, too.

Last night, for example, I was cleaning up my desk. I have an envelope I keep business expenses in. There was a hotel bill for a trip when my AOL issued credit card was turned off for the day. Some taxi expenses and a restaurant bill. I looked at them, thought about the process for turning those expenses in and then having to defend them via a phone call (Heather would probably save me from this, but there goes an hour of her time). So I did the rational thing. I shredded those receipts – around $1,500 – because it wasn’t worth the pain.

Part of this process – at least at one point if not now – was referral of expense reports out to a third party firm who would assign you a “case number” and ask you to do things like send actual boarding passes to them to defend flight expenses. Sometimes we can’t get our writers to take business trips because of how difficult it is to be reimbursed for expenses.

Then today I was talking to someone at AOL about nothing in particular, and he brought up his own troubles with expense reimbursement. I asked why the company is so crazed about it.

Enter Gregory Horton. This guy was head of HR at AOL a decade ago when the company was still part of Time Warner. His story is amazing. He apparently set up a dummy consulting corporation and was billing AOL $100,000 a month for made up work. All in all, the company lost over a million dollars to Horton, or so the story goes.

Because of Horton, AOL has for nearly a decade had draconian expense reimbursement policies.

This is one of those points of friction in a company that should be stamped out. Find and prosecute the Hortons of the world. But give your loyal employees a break. Don’t make them feel like criminals for trying to get legitimate expenses approved and paid in a timely manner. In the end, this is just a self-imposed competitive disadvantage against nimbler companies.