Monthly Archives: June 2016

The problem with Facebook and Apple, as explained by Batman and the Joker

Facebook and Apple are both under the microscope this week because of the power they have over those who build their businesses on their platforms.

For Facebook, the issue is a change to its News Feed algorithm that will privilege posts from friends over posts from news publishers (like Business Insider). For Apple, it’s a public battle with Spotify over the 30% fee that it collects from subscriptions sold through apps in the App Store.

In both cases, the question is the same: How much responsibility do these tech companies have when the needs of their own business conflict with the needs of the companies that rely on them for distribution and revenue?

Thinking about that question, I’m reminded of a page from “Batman: The Killing Joke,” a classic comic first published in 1988 and soon to be adapted into an R-rated animated movie starring Mark Hamill.

At the end of that story, Batman has captured the Joker after a caper that’s actually super weird and icky and that involves gratuitous violence towards women. Before Batman turns him in, the Joker tells one last joke:

Two inmates are trying to escape a lunatic asylum and get up to the roof. There’s a narrow gap to the next rooftop, and beyond it, freedom. The first inmate jumps across without a problem, but the second one is afraid of falling. So the first inmate offers to shine his flashlight across the gap, so the second one can walk across and join him.

The punchline:

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“Batman: The Killing Joke.” Words by Alan Moore, pictures by Brian Bolland.
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DC Comics

In the Joker’s telling, this joke is about his relationship with Batman, suggesting that they’re both too crazy ever to give up their strange, comic-book lives. The two share an unprecedented laugh together.

But it works just as well as a metaphor for Apple and Google, too:

In Facebook’s case, news publishers can’t afford not to keep a presence on the social media platform, given its increasing place in people’s lives as a news distribution service. As Facebook just proved, though, it can turn off the flashlight at any given moment, and poof, there goes the business.

In the case of Apple, developers can’t afford to ignore the iPhone. Accepting that 30% “Apple Tax” is something they do willingly, because that’s the cost of getting access to the millions of iPhone owners around the world – potential revenue that no app developer could ever afford to leave on the table. App development is a thin-margin business as it is.

In both cases, businesses go in knowing that it’s a flashlight beam that hinges on the platform company not simply flicking the switch and leaving them to fall into the void. They do it anyway, because there’s simply no other choice.

Chipotle responds to cocaine charges against senior executive

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Mark Crumpacker.
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Getty Images

Chipotle has placed Mark Crumpacker, its chief marketing and development officer, on administrative leave after he was charged in relation to a drug-trafficking ring in New York City, the company told Business Insider.

Crumpackerwas one of 18 “repeat customers” charged on Thursday with allegedly buying cocaine from a drug-delivery service that operated out of Manhattan’s Lower East Side.

Chipotle spokesman Chris Arnold told Business Insider:

“At the moment, we know very little about these charges. Due to the nature of the situation, Mark has been placed on administrative leave. We made this decision in order to remain focused on the operation of our business, and to allow Mark to focus on these personal matters. Mark’s responsibilities have been assigned to other senior managers in his absence.”

All of the alleged buyers were charged with criminal possession of a controlled substance, according to indictment papers obtained by Business Insider.

The Manhattan district attorney’s office charged three people for allegedly operating the cocaine-trafficking ring: Kenny Hernandez, 35, Felix Nunez, 27, and Oscar Almonte, 29.

They are accused of selling more than $75,000 worth of cocaine over the course of a year, according to the charging documents.

Customers regularly paid between $200 and $300 for the delivery service and bought the drugs in bodegas, hotels, and Duane Reade convenience stores, according to the indictment papers.

According to the Manhattan district attorney’s office:

“Members of the ring allegedly used car services to deliver the drugs to buyers, including to delis, restaurants, bars, apartments, hotels, and the buyers’ workplaces. The defendants delivered to locations across Manhattan, including the Lower East Side, the Upper East Side, Chelsea, the Financial District, and Midtown, as well as areas of Brooklyn and Queens. Many of the sales took place in delis or Duane Reade and CVS pharmacies. Customers generally paid between $200 and $300 per transaction.”

Crumpacker, 52, was named chief marketing officer of Chipotle in 2009.

He made an estimated $4.3 million in 2015.

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Chipotle co-CEO Steve Ells, Chief Marketing and Development Officer Mark Crumpacker, co-CEO Monty Moran, and Chief Finance Officer Jack Hartung walk the red carpet at the world premiere of “Farmed and Dangerous,” a Chipotle/Piro production at the DGA Theater on February 11, 2014, in Los Angeles, California.
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Getty Images

In addition to his roles at Chipotle, Crumpacker serves as president of the Chipotle Cultivate Foundation, a charitable foundation established by the company in 2011. Crumpacker also serves on the board of directors of the Jamie Oliver Food Foundation.

Before joining Chipotle, Crumpacker cofounded a San Francisco-based branding firm, Sequence. He worked there from 2002 to 2008.

Here are the indictment documents.

Buyers indictment by Hayley Peterson

Buyers indictmentHayley Peterson

Sellers indictment by Hayley Peterson

Sellers indictmentHayley Peterson

Stealth startup Zoox lands $200 million for its secretive self-driving car

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Tim Kentley-Klay and Jesse Levinson.
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Zoox

Zoox, the super-stealth self-driving-car startup, has closed a $200 million round of funding, according to a source familiar with its fundraising plans.

In an SEC filing on June 6, the startup said that it had raised over $100 million in equity. Business Insider has learned that the rest of the round has now closed. The Wall Street Journal first reported in May that an unspecified amount of funding gave it a $1 billion valuation.

Zoox has been working in secret on a fully autonomous car for years. In 2013, the company debuted some splashy renderings of the car, nicknamed “Boz,” before reverting back into stealth mode. According to IEEE, the car is designed to not have windshields or a steering wheel or break pedal. Instead, it can drive in any direction while passengers sit inside, facing each other.

In March 2016, Zoox secured its permit to begin testing its self-driving car in California.

Zoox was founded by Tim Kentley-Klay, an Australian designer, and Jesse Levinson, a Stanford engineer who worked on self-driving cars with the co-creator of Google’s self-driving car.

Merrill Lynch associate and Fox Business producer among 21 indicted in massive New York cocaine bust

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Daniel Barry / Stringer / Getty Images

The Manhattan district attorney’s office has charged more than a dozen people, including high-profile executives, bankers, and accountants, in relation to a massive New York City cocaine sting.

Three people were charged with operating the cocaine-trafficking ring out of Manhattan’s Lower East Side: Kenny Hernandez, 35; Felix Nunez, 27; and Oscar Almonte, 29.

The operation is accused of selling more than $75,000 in cocaine in one year, according to indictment papers obtained by Business Insider.

Eighteen others who faced charges were described as “repeat customers,” including Christopher Dodson, a client associate at Merrill Lynch; Mark Crumpacker, the chief marketing and development officer for Chipotle; Katie Welnhofer, a Fox Business producer who works on “Mornings with Maria”; and Austin Dodson, an associate at the real-estate firm Cushman & Wakefield.

Merrill Lynch, Chipotle, Cushman & Wakefield, and Fox Business did not immediately respond to requests for comment.

An 88-page charging document details nearly 200 texts and calls among those accused of being buyers and sellers from June 2015 to June 2016.

Those accused of being buyers were charged with criminal possession of a controlled substance.

Customers regularly paid $200 to $300 for the delivery service and bought the drugs in bodegas, hotels, and Duane Reade convenience stores across Manhattan, according to the indictment papers.

The Manhattan district attorney’s office said:

“Members of the ring allegedly used car services to deliver the drugs to buyers, including to delis, restaurants, bars, apartments, hotels, and the buyers’ workplaces. The defendants delivered to locations across Manhattan, including the Lower East Side, the Upper East Side, Chelsea, the Financial District, and Midtown, as well as areas of Brooklyn and Queens. Many of the sales took place in delis or Duane Reade and CVS pharmacies. Customers generally paid between $200 and $300 per transaction.”

Here are the indictment documents.

Sellers indictment by Hayley Peterson

Sellers indictmentHayley Peterson

Buyers indictment by Hayley Peterson

Buyers indictmentHayley Peterson

Great video shows an MLB player from tiny Coastal Carolina watching the final out of the College World Series during warm-ups

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Twitter/Tampa Bay Rays

Coastal Carolina, a school with fewer than 10,000 students in Conway, South Carolina, won its first NCAA championship in any sport when it beat Arizona in Game 3 of the College World Series on Thursday afternoon.

The school is so new to the national baseball scene that it has just one former player among the about 800 players on active Major League Baseball rosters: rookie utility player Taylor Motter of the Tampa Bay Rays.

Motter was in the middle of warm-ups when the Rays put the end of the College World Series game on the videoboard in the outfield. The team captured this cool video of Motter watching the final strike and then ripping off his warm-up jacket to reveal a Coastal Carolina T-shirt.

.@taylormotter7 is the onlyChanticleer on an @MLB activeroster. When @CoastalBaseball won the#CollegeWorldSeries:pic.twitter.com/JfEmUiuOQQ

@taylormotter7@MLB@CoastalBaseball#CollegeWorldSeriespic.twitter.com/JfEmUiuOQQJune30, 2016

Here is another view of Motter and his shirt in a video congratulating his school:

Hey @CoastalBaseball,@taylormotter7 hassomething to tell you: Congrats, #CollegeWorldSerieschamps! pic.twitter.com/quPpI0F9Jc

@CoastalBaseball@taylormotter7#CollegeWorldSeriespic.twitter.com/quPpI0F9JcJune30, 2016

Zenefits resets value at $2 billion, down from $4.5 billion, in stunning deal to prevent investor lawsuits

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Zenefits CEO David Sacks.
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Zenefits

Zenefits CEO David Sacks just announced a deal with its investors to give them a bigger chunk of the company in exchange for their agreement not to sue.

In May 2015, investors plowed $500 million into Zenefits for about 11% of the company, valuing the then 2-year-old business at $4.5 billion.

The new deal gives them 25% and revalues the company at $2 billion.

In exchange, investors must agree not to sue the business after it disclosed that it was under investigation by multiple states for selling insurance without a license, and it openly accused its founder, ex-CEO Parker Conrad, of writing a computer program used by employees to “circumvent a state licensing requirement,” as Sacks puts it.

Sacks was the COO at the time and also an investor who had put in millions of dollars of his money. But he says that he had no idea about this program. As soon as he found out, he took action, Conrad resigned, and has been cleaning everything up ever since.

Because this agreement will also dilute common shareholders, including employees, Zenefits is giving workers more shares so they are “trued up” through a special stock grant that fully vests in one year. This is a grant, not stock options, so employees won’t have to worry about an underwater strike price. Their percentage of the company will essentially be unchanged.

Sacks says that the executives will get new four-year grants, except for himself and cofounder Laks Srini, who are forgoing the extra shares to make sure that there are enough shares for everyone else. That means that Sacks will see his stake reduced through dilution.

Several large investors have already agreed to this, including Fidelity, TPG, Andreessen Horowitz, and Insight Venture Partners, and Sacks says that all shareholders will be offered the agreement soon.

But there’s one exception: The $10 million of stock that Conrad personally sold to investors to cash out some of his equity as part of that C round. Zenefits isn’t offering them this deal and they don’t have to give up their right to sue, Sacks says, adding, “I hope that issue will be resolved in the near future.”

Zenefits is a private company and doesn’t have to freely air its dirty laundry like this agreement. But because Zenefits’ troubles became so public, Sacks is also being extremely candid about the things he’s doing to resolve them.

Here’s the full emailed statement Sacks sent to investors and employees:

“SUBJECT: Investor Settlement

“As you all know, I became CEO of Zenefits in February after it was discovered that the previous CEO/founder had written a software program (or ‘Macro’) that was widely disseminated in the company to circumvent a state licensing requirement. He resigned, the Board asked me to step in, and since that time, we have been working to remediate the situation and reset our relationships with all of our key stakeholders. These include regulators, industry partners, customers, employees and investors.

“Our efforts have included self-reporting the Macro issue, bringing our licensing into compliance, changing our leadership and governance, instituting new company values, and transforming the culture so that compliance is a top priority. We announced plans with Salesforce to open-source our licensing controls so the rest of the industry could benefit from our technology. We also offered a generous voluntary separation package (‘The Offer’) for any employee who did not agree with the new direction. I’m proud that roughly 90% of employees chose to stay and re-commit to the new Zenefits.

“Today we are announcing something similar for our investors. Since shortly after becoming CEO, I have been in discussions with a number of our major investors about how we can reset our relationship in light of the fact that they (like I) were never informed about the Macro before investing in the company. We have been working on a new basis on which they can re-commit to the company and get fully aligned with the new Zenefits. We are announcing that agreement today.

“This agreement will increase the ownership of our Series C investors, who invested approximately $500 million in May 2015, from about 11% of the company to about 25%. This effectively revalues the Series C at a $2 billion valuation. The Series A and Series B investors will receive small adjustments to offset their dilution. The common stock will be diluted about 20% from its current level — about the same as a typical financing round. In my view, that is well worth it to realign our existing shareholders with the company. At some point, this company will want to sell its shares again, and future prospective shareholders will look closely at how we treated our current shareholders.

“We do not want employees to be negatively impacted by this agreement. So each non-executive employee of Zenefits will be ‘trued up’ through a special stock grant equal to 25% of their current number of shares. This new grant will vest 100% in 12 months. It will consist of RSUs rather than options so that employees don’t have to pay a strike price. Our executive team will also receive additional 4-year grants to incentivize them. However, co-founder/CTO Laks Srini and I have offered not to participate in this true-up in order to ensure that there are enough shares for employees. We will be diluted to the same extent as any other common stockholder.

“As part of this agreement, each participating investor will sign a release, which will allow the company to move forward and put the past behind us. This agreement does not include a release for the $10 million of stock that Parker sold personally; I hope that issue will be resolved in the near future.

“The agreement also contains a few provisions to foster good governance, such as the creation of a permanent seat for the Series C on the Board of Directors (which is already occupied by TPG’s Bill McGlashan) and the creation of a Compliance Committee on the Board. Both the company’s management and its investors believe these are wise things to do.

“The investor agreement has already been approved by a number of the company’s major investors including Fidelity, TPG, Andreessen Horowitz, and Insight Venture Partners. We will be offering it to all our investors shortly.

“I want to thank our investors for reaffirming their confidence in us. We take our commitment to you seriously to build value for all shareholders. As a result of The Offer and Investor Settlement, all of our employees and investors will be aligned, committed, and focused on what’s next, which is the launch of Z2 in October.

“David”

This bra trend is killing Victoria’s Secret

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Facebook/Victoria’s Secret

Victoria’s Secret has long been known for its heavily padded bras.

But this spring, it took a turn and started selling bralettes, the latest trend in the bra industry.

This – coupled with the rise of athleisure and sports bras – could spell trouble for the brand, The Wall Street Journal reports.

It’s twofold: First, The Journal points out that bralettes are cheaper than their padded counterparts, hovering around $20, versus a more expensive regular bra.

Sports are slightly more expensive than that, and The Journal points out that if people are buying more of less-expensive apparel, then that will damage the company’s overall sales. In its most recent fiscal year, it amassed nearly $7.7 billion in total sales.

So many bralettes, all the possibilities. #AllMe ➡️ our profile page to see them all.

A post shared by Victoria’s Secret (@victoriassecret) on

Second, it’s particularly easy to make a bralette: Almost any brand can do it.

“There are no barriers to entering in the bralette game,” Gabriella Santaniello, analyst and founder of consulting firm A-Line Partners, told Business Insider in April.

She cited multiple companies selling bralettes, from Aerie to Urban Outfitters. These other companies also have an au naturel look more innately built into their brand DNA.

“You have these other brands that are less so overtly sexy and much more focused on being natural,” Nomura analyst Simeon Siegel told The Wall Street Journal. “It’s too early to say it will steal a dramatic share from Victoria’s Secret but it’s not too early to say that there’s a real consumer preference for it.”

Victoria’s Secret has been trying to appeal to that preference with a marketing campaign that declares that “no padding is sexy.” But consumers are used to the company hawking heavily padded bras and curvaceous bodies – it sends a mixed message.

Some consumers were irritated at the brand’s sudden drastic change. Some weren’t happy that the company was inherently suggesting that only people who could wear unpadded bras could be a part of this new “sexy” trend.

In the meantime, the company is in the middle of lots of changes.

It nixed its swimwear sector to zero in on athleisure, as BuzzFeed reported earlier this year. While the payoff is supposed to be big down the line, right now the company is balking to retail’s most dangerous trend – lots of promotions and markdowns – while it clears out inventory from the categories it’s killing off.

For the full Wall Street Journal story, click here.

Here’s what Marissa Mayer told upset investors asking about Yahoo’s decline

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Yahoo CEO Marissa Mayer.
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Yahoo

Yahoo’s business has been declining for years, and investors are not happy about it.

During Yahoo’s annual shareholder meeting on Thursday, one frustrated investor went straight to Yahoo CEO Marissa Mayer to ask about it.

Mayer’s answer: The company is investing in growth.

“We’re in a very competitive space, so we’ve invested in our products to make sure that we attract the maximum number of users and the maximum amount of their time and energy each day,” Mayer said during the meeting.

She stressed that Yahoo drives most of its revenue through digital advertising, and some parts of the online advertising business, like banner ads, have been in a secular decline over the past few years, as seen in Yahoo’s shrinking desktop revenue.

Yahoo has been aggressive on the mobile-advertising front, investing in two major products, Gemini and BrightRoll, to beef up its mobile, native, and video advertisement offerings.

Mayer reiterated that Yahoo’s “Mavens” business – short for mobile, video, native, and social – was almost nonexistent when she first joined the company, yet it’s now generating $1.6 billion in annual revenue. But Mavens’ growth has also turned sluggish in recent quarters.

“These are some of the elements on the strategic plan that we’re executing to try and correct for the lack of growth,” Mayer said.

She declined to make any comment on Yahoo’s core sales process.

But she did say that it was “continuing to make great progress” and that she was “heartened by the interest in Yahoo.” Recent reports suggest that companies like Verizon and AT&T and some private-equity firms have expressed interest in buying Yahoo’s core internet properties.

“It validates our business progress and achievements to date,” Mayer added.

Benghazi report reveals the surprising allegiance of the group that helped rescue Americans during attack

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A member of the Libyan pro-government forces with a weapon during street clashes with the Shura Council of Libyan Revolutionaries in Benghazi.
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Thomson Reuters

The militia members who came to the aid of American personnel during an attack on a US diplomatic compound in Benghazi, Libya, in 2012 were allied with a leader whom the US helped force out of power, a new government report revealed.

The Republican-led House Select Committee on Benghazi released its long-awaited report this week, and it contained new details from the September 11, 2012, attack that left four Americans dead, including Ambassador Christopher Stevens.

One revelation is that the militia members who came to the rescue at the CIA Annex in Benghazi, where US personnel who fled after the diplomatic compound came under attack, were from a group called “Libyan Military Intelligence.” The group comprised military officers loyal to Col. Moammar Gaddafi, the Libyan leader the US opposed.

The House committee report, citing a member of “Team Tripoli,” said of the US rescue team that had been deployed to Benghazi:

“A key issue remained in that ‘there was no security vehicle, no gun trucks that would help us get to the airport. And we determined we could probably not make it with the vehicles we had inside the compound.’ At 6:16 a.m., a 30-vehicle motorcade arrived at the Annex to provide transport support by the Libyan Military Intelligence.

“The forces that arrived at the Annex shortly after the mortar attacks were able to transport all State Department and CIA personnel safely to the airport. The forces, known as Libyan Military Intelligence, arrived with 50 heavily-armed security vehicles. Libyan Military Intelligence was not part of the Libyan government, nor affiliated with any of the militias the CIA or State Department had developed a relationship with during the prior 18 months since the Libyan revolution took place. Instead, Libya Military Intelligence – whom the CIA did not even know existed until the night of the attacks – were comprised of former military officers under the Qadhafi regime who had gone into hiding in fear of being assassinated, and wanted to keep their presence in Benghazi as quiet as possible so as to not attract attention from the militias in control of Benghazi.”

The “friendly” militia that was supposed to be protecting US personnel in Benghazi had reportedly fled.

So many militias ran rampant in Benghazi that it was difficult to tell friend from foe and know which groups had a presence in the city.

Stephen Walt, an international-affairs professor at Harvard University who writes about foreign policy, said that collecting good intelligence in these situations is difficult.

He told Business Insider in an email:

“This episode reminds us that violent regime change creates a state of anarchy where competing groups are all out for themselves, and outsiders rarely have adequate information about the relative strength of rival factions, the nature of their leaders, or how their political alignments may shift over time.

“The point is not that the CIA or State had ‘bad intelligence’ prior to Benghazi; it is that outside governments rarely have good intelligence about what different groups will do once the old regime collapses.”

The Obama administration has often been criticized for its handling of the Benghazi attacks, but the House report contained no new evidence of wrongdoing on behalf of then Secretary of State Hillary Clinton, who played a central role in the response to the crisis.

Administration officials blamed the attack on spontaneous protests over an online video, but further investigation revealed that it was likely the work of Al Qaeda-linked terrorists.

US Air Force to spend $118 million on decoy planes to confuse enemy defenses

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A Raytheon MALD-J attached to the pylon of a B-52.
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Raytheon

The US Air Force just offered Raytheon $118 million for a contract to provide Lot 9 Miniature Air Launched Decoy Jammers (MALD-J) to support their aircraft, UPI reports

MALD-Js launch from aircraft like a missile, but instead of striking a target, they duplicate the flight profiles and the radar signatures of the aircraft that launched them, thusly acting as a decoy.

With the MALD-Js, a fighter jet can send out a decoy as it approaches a protected airspace. When enemy air defenses fire on the decoy, they reveal their position and deplete their ammunition, which is often costly. Many of today’s best air defense systems, like Russia’s S-400, are road-mobile, and therefore hard to find.

The MALD-Js, which weigh just 300 pounds and have a range of 500 nautical miles, can theoretically force these missile batteries to reveal themselves to the real combat aircraft that lag behind.

Even better than most decoy systems, these can also have jamming capabilities, to further cripple enemy air defense systems.

This video offers a brief explainer of how the MALD-Js work: