The Crowd #8217;s Money Can Dominate Early-Stage Investing, But Only If The VCs Get Their Cut

Editor’s note: This is the second part of a two-part guest column by Zach Noorani. Part one examined whether equity crowdfunding is a threat to VCs. Zach is a former VC and current second-year MBA student at MIT Sloan. Follow him on Twitter @znoorani.

Is angel capital an attractive asset class? Is the crowd capable of being good investors, willing to spend 20-40 hours doing due diligence per investment? These are critical questions to help determine just how big equity crowdfunding will become, right? I say no.

Successful startup investing is way too hard, and the wisdom of the crowd is way too useless if not destructive (in this case at least). For equity crowdfunding to become a mainstream activity, these questions don’t need to be answered, they need to be removed from the equation.

That’s why the crowdfunding platforms themselves prospect the deals, decide whether they’re attractive, and negotiate the terms. The crowd only sees investment in committee-approved, neatly packaged and pre-negotiated deals.

FundersClub advertises that fewer than 5 percent of applicant companies get listed on its site.CircleUp’s acceptance rate is less than 2 percent.AngelList’s approval rate barely registers given that just 15 companies can be invested in online out of the 15K or so they have access to.

You can call that simple curation, but it’s the same process with largely the same ratios that institutional VCs undertake. In essence, crowdfunding platforms are the general partner venture capitalist and have made the crowd their limited partner investors. Their economic models might differ from normal VCs, but their path to success is the same: Build an investment portfolio that makes their LPs an attractive return.

In terms of what constitutes an attractive return, crowdfunding has some advantages over traditional VCs.

In many cases, investors aren’t charged management fees or carried interest, and the “2 and 20” fee structure of most VC funds is expensive as hell. Rather than trust my math, Fred Wilson calculated the difference between gross (what the crowd gets) and net (what regular VC LPs get) returns on a fund that nominally did a 4x: 39.2 percent (gross) vs. 28.6 percent (net). Big difference.

Another advantage is that crowd investors get to pick and choose when to participate. While hard to quantify, there should be some economic value associated with this option.

Taken together, returns as low as break-even (per annual vintage) could be enough to entice the masses. Either by luck or successful cherry-picking, a large portion of the crowd would then be able to make money. But how feasible are break-even returns and at what level of scale? To answer, let’s examine the three models of equity crowdfunding: VC pledge funds; online private placement; and loss leaders.

Venture Capital Pledge Funds

Think FundersClub and OurCrowd. Much like traditional asset managers, the model requires a combination of management fee on capital invested and carried interest on profits. But rather than having committed capital, investors come in on a deal-by-deal basis.

fee structures matter but not nearly as much as deal quality.

FundersClub, for example, charges a one-time fee ($300 for a $2.5K investment) to cover transaction costs and will eventually institute a carried interest fee – meaning they make money when investors do, aligning them well with investors generally.

One disconnect, however, is that crowdfunding carry on good investments won’t be affected by the bad, which implies little direct incentive to avoid them. Depending on the return profile, this can also make VC pledge funds quite expensive. Take a very simple example (ignoring management fees):

A $50 million VC fund (with 20 percent carry) makes 10 $5 million investments in year oneIn year five: Five deals return nothing, three return principal, and two return 3.5x principalFund return: 1.0x gross, $0 in carry, 1.0x netIdentical performance from a crowdfunding business (with 20 percent carry) nets 0.86x to the crowdFor the crowd to get 1.0x principal, the portfolio must gross 1.18x (4 percent IRR over the five years)

Certainly fee structures matter but not nearly as much as deal quality. While some might view crowd capital with a stigma, to entrepreneurs VC pledge funds are just very public angel groups with perhaps fewer voting rights – overall, not a huge handicap in deal sourcing. And to find deals they use exactly the same tactics as every other professional investor. Therefore success here requires the same caliber of deal sourcing ingenuity and investment acumen as it does for all VCs.

As a result, the sector should develop in some predictable ways:

1.  To raise a devoted VC fund, you actually have to convince relatively sophisticated investors to bet on you based on your experience and capabilities. Since the crowd largely thinks they’re the general partner, crowdfunding managers face no such scrutiny. Resulting performance should therefore be markedly worse.  Expect most VC pledge fund managers – hundreds maybe – to fall far short of returning investor capital.

2.  Some portion will do well by accident.

3.  A few will actually prove to be exceptional fund managers.

4.  It’ll be hard to tell which is which at least for the first couple of years and there’ll be many bad companies funded and money lost in the process.

5.  Given all this uncertainty, the crowd will favor the few that successfully build brands.  But if those players are also good investment managers, their deal volume won’t expand much to meet investor demand.  So the more enthusiasm the Crowd has for the asset class, the more they’ll be pushed to less credible platforms.

6.  Speaking of, anyone want to start a Morningstar-like evaluation and performance measurement service for equity crowdfunding platforms? The industry will desperately need one.

7.  All this will happen no matter how stringent the SEC’s crowdfunding guidelines end up being. It’s just a tricky asset class.

How This Affects Venture Capitalists

We’re basically just talking about a bunch of new angel groups. The more the merrier as far as VCs are concerned. Their money would help more startups get further along before needing a $5 million – $10 million round. To VCs that means more and less risky investment opportunities to choose from. Maybe Sequoia should send FundersClub some flowers?

But what will happen to the few successful VC pledge fund managers? Undoubtedly they’ll be tempted to move beyond seed rounds and invest larger amounts in later-stage companies, take board seats and invest in stealth companies and follow-on rounds. Perhaps they’ll find a way to do all that through crowdfunding.

And if they do, you can be sure that established VCs would follow suit (500 Startups is already trying). They won’t actually renounce their existing limited partners so this would mean billions of incremental dollars from the crowd gushing into the market. Could this over-capitalize the industry and hurt everyone’s return?  Sure, but so long as the VCs get to manage that capital, they’re happy to take that risk.

More likely, however, is that successful crowdfunding managers raise capital from traditional limited partners themselves or get poached by established VC funds with their famous brands, rich fee structures, and steady streams of committed capital.

Online Private Placement

Private placement agents, deal brokers, bankers, etc. have always played a large offline role in the startup ecosystem. They help companies raise money in exchange for some combination of retainer, percentage of the capital raised, and equity.

With online platforms, deal brokers are extending their services down market, now able to represent many more businesses to many more investors. But at some point “more” investors means the crowd and then their model has to change. To compensate for the crowd’s naiveté and laziness, the placement agent himself has to assume responsibility for maintaining high-deal selection standards. Some dynamics unique to brokers make this problematic:

1. Success Fee-Based Compensation – Your real estate agent doesn’t care what house you buy, just that you buy one and that it’s expensive so that he gets a fee and it’s big. If a broker’s thinking is too short-term, what keeps him from offering whatever deals he thinks he can get the crowd to invest in (regardless of objective quality) so as to earn a fee?

2. Adverse Selection – In a market filled with active and competitive investors, why is it necessary for companies to hire bankers and pay them ~5 percent to 10 percent of the amount raised? Sometimes the decision bears no reflection on the quality of the company for reasons like transaction complexity, geographic remoteness, or esoteric industry focus.  But sometimes it means something is amiss and you’d do well to pass on the opportunity.

Given these distorting incentives, it’ll be even harder for private placement platforms to build break-even portfolios than VC pledge funds. But not impossible.

CircleUp provides an interesting example. They focus on consumer businesses, which CEO Ryan Caldbeck explains are “20 percent of the economy but just 4 percent of angel capital.” Further, consumer startups with annual sales <$20 million are subscale for private equity and not technology-driven enough for most VCs.  That focus perhaps alleviates the negative selection risk.

But are their long-term incentives compelling enough to enforce maniacal deal screening? Here’s my back of the envelope for CircleUp’s model:

most startups will fail no matter how much capital they raise.

There are 1.4 million consumer businesses in the U.S. with <$20 million in annual sales. If you buy that the sector’s truly underserved, then it’s not crazy to assume 2 percent are attractive investments. If 10 percent of those companies raise $300K annually through CircleUp, that yields the company $70 million in revenue (assuming 5 percent broker fee). And there are lots of acquirers who’d pay attractive multiples for a value-add transaction processing business (just wait and see what Eventbrite trades at once it goes public). Interesting, right?

VCs are reluctant to admit it, but they regularly work with private placement agents. There’s no reason they wouldn’t patronize the online version for the right deal. In fact, the more effective deal screening and packaging that brokers provide the more of VC analysts’ jobs they’re doing. Not much threat here.

Loss Leaders

By this I mean AngelList.

AngelList’s primary goal is to connect startups with investors. Think of them as a private placement platform without the fees – CEO Naval Ravikant has repeatedly said that AngelList will never attempt to monetize fundraising-related activities. Any company can make a listing, most can get introductions, some get recommended to investors, and now a choice few are made available to invest in online.

AngelList wants to help make building companies easier. It’s also a social network, and fulfilling that mission expands the user base and increases engagement, which they’ll eventually monetize through premium services. But most startups will fail no matter how much capital they raise. AngelList’s essential value, therefore, is not as an indiscriminate fundraising service for private companies, but as a platform that helps discern which companies might actually succeed and make investors money. And to build the type of long-term usage they need, they must be good at this discernment.

Consequently, AngelList is in a unique position to dominate equity crowdfunding. Investors receive full gross returns and are unaffected by perverse deal quality incentives facing pledge funds and brokers. Furthermore, AngelList doesn’t need to deal source; they see the vast majority of early-stage deals automatically – tens of thousands at any given time. If they can just crack the formula of deal selection and demonstrate consistent break-even returns, the volume of online investments they facilitate could become enormous.

The first few billion dollars of crowd capital will do nothing but de-risk the deals VCs were going to do anyway.

Who needs VCs then, right?  Some of AngelList’s most predictive data has to be which investors have committed to participating in a particular round. Said differently, a VC’s vetting process is likely a critical input to AngelList’s approval engine so the crowd could never actually replace professional investors in this model. Not to mention that someone still needs to structure and lead the transactions as well as represent the security’s voting rights.

In that sense, the crowd’s money would only complement professional investor dollars, producing many more and less risky Series A investment opportunities. Perhaps a whole lot of them. Maybe the NVCA should throw a banquet in AngelList’s honor?

In an end-state where AngelList’s crowdfunding service has proven viable, perhaps they’ll find ways to broaden the Crowd’s investment capabilities to handle larger amounts, follow-on commitments, etc. But the need for VCs to both vet the deal and facilitate the transaction remains unchanged.

One thought, however: The VC’s value in AngelList crowdfunding is likely not correlated with investment amount, meaning that $2 million from the right $50 million fund can mean the same as $20 million from a $500 million fund. Perhaps the crowd would be interested in making up the $18 million difference.

So What’s The Damn Answer?

VCs are the Br’er Rabbit of the startup ecosystem. They can appear vulnerable and don’t mind playing the woeful underdog. But they invented the rules for the game that I’ve discussed. Any sort of change is rarely more than an opportunity to outcompete one another.

The first few billion dollars of crowd capital will do nothing but de-risk the deals VCs were going to do anyway. In the meantime, all that crowd activity will fund development of deal-screening services that VCs will use to improve their coverage and slim down their teams.

If the crowd is ever going to approach a 40 bps allocation to startups (as discussed in part one), it’ll be because the VCs engineered it and profited handsomely in the process. Their revenue models and fund structures might shift, but they’ll continue to control where the capital goes.

[Images: Willy and shadow crowd]

Myriad Social TV brings social networking to your cable box (hands-on video)HD

The marriage of social networking and television is nothing new, but Myriad recently launched Social TV, a white label solution which allows TV service providers to roll out their own custom social networking platform on your cable box. It complements services like Twitter, Facebook and Google+ by offering a more contextual way for viewers to interact with their friends while watching TV. Social TV provides an integrated HTML5 experience that's consistent across both television and companion devices (phones and tablets). Viewers can chose between receiving alerts on their TVs, mobile devices or both and can create show- or series-specific virtual communities that automatically expire when the program ends. The system is even mindful of time zones and time-shifts messages to prevent spoilers. More after the break. Myriad Social TV hands-onSee all photos

Samsung's Galaxy Note 10.1 is fit for a queen -- The Queen, in fact

The Queen always keeps up with the latest technology, and today she'll try to squeeze a Galaxy Note 10.1 into her handbag. The tablet represents a "digital time-capsule," and will be loaded with multimedia clippings -- submitted by people from all over the world -- detailing history during her reign. A total of 60 video, audio and text entries were selected from 80,000 (150GB-worth), but all of that data will eventually be added to an online archive called the "Diamond (re)Collection." The project was orchestrated by The Royal Commonwealth Society, which briefly considered using an iPad, but ultimately decided Samsung's slate was the more regal (even if it is less cool). It leaves us wondering -- will the next Royal Decree be signed with an S-Pen?

Backed Or Whacked The Shape Of Sounds To Come

Editor’s note: Ross Rubin is principal analyst at Reticle Research and blogs at Techspressive. Each column will look at crowdfunded products that have either met or missed their funding goals. Follow him on Twitter @rossrubin.

Whether you rocked your New Year’s Eve Gangnam Style, fed your Bieber fever, or just took in a traditional Auld Lang Syne, there was an opportunity to get that music out of your smartphone and share it with the rest of the party. And as long as that party wasn’t larger than, say, a half-dozen people, any number of the more than dozen Bluetooth speakers on the market could help you with that task.

Indeed, despite being a poor vehicle through which to demonstrate audio quality, Kickstarter did its part in 2012 to fund a few such products. These included the stylish Hidden Radio in January, which raised nearly $1 million; Carbon Audio’s silicone-encased, tablet-gripping Zooka in March; and the weather-resistant Turtle Shell from Outdoor Tech in  October. With 2013 barely underway, though, three more Bluetooth speakers have set out not only to amplify tunes but crowdfunding’s unceasing cry for financial support.

Backed: Boombot Rex. What happens when you take a bunch of hip San Francisco product designers and put them into a neon-lit studio from which they can call their tattoo-covered bros? Boombotix, a startuptopia where the world is nothing but tasty surfin’, solderin’ and spearphonin’. The hexagonal Boombox Rex has a similar perforated exterior to the Turtle Shell and is also ruggedized. But while some of the feedback on that earlier weather-resistant project have found its audio quality lacking, the Rex aims to achieve a rich sound by integrating two 36 mm drivers and a small woofer within its frame.

Deep bass requires deep pockets. The more than 1,100 backers eager to encourage the mostly healthy-living, product-development equivalent of The Real World — and perhaps pick up one of the $80 powerhouses — have contributed more than three times the compaign’s $27,000 goal. And that’s with about six days left in the campaign. The Rex is due in March; that is, assuming the team can tear itself away from the lives you wish you had.

Backed: CoverPlay Mojo. The rectangular CoverPlay Mojo may not have as creative a shape as the Rex, but it squarely beats it in at least one dimension: thickness. The 7 mm speaker is such a natural accessory for svelte tablets that CoverPlay has designed a case that can hold both as a $30 accessory. Offering something like it as a stretch goal would have been a nice bonus for the campaign, but the Mojo held on to its own mojo by a margin nearly as slim as the speaker itself, reaching its $30,000 funding goal with less than a grand to spare. Instead, the company introduced a mid-priced reward tier in its last 10 days ($95 as opposed to the $105 previously offered), which helped it get over the edge. Austin Powers may have been able to claim his mojo in less than two hours, but backers are slated to get their Mojos in March.

Whacked: XyloBeats. The last time someone offered something as cute, wooden, and capable of remote audio as the cylindrical Xylobeats was at the end of Terry Fator’s arm at The Mirage. The small “eco-friendly” XyloBeats are roughly as tall as their diameter and are available in six wood finishes. The top end of the rewards included a set of all six for $160.

But the campaign is in its final days with less than 20 percent of its goal reached. It’s difficult to see where the XyloBeats campaign went wrong. The goal was not outlandish at $10,000, and the reward prices were downright cheap – not only by Kickstarter standards but even in comparison to the overall market for Bluetooth speakers. People may have been turned off by needing to add a second unit to achieve stereo, but that was also true for the pricier and more powerful wooden 1Q that raised nearly $200,000 last summer.

Crunchbase

ROSS RUBIN RETICLE RESEARCH Person:Ross RubinWebsite:about.meCompanies:Reticle Research, JupiterResearch, The NPD Group

Ross Rubin is principal analyst at Reticle Research, which he founded in 2012. Reticle Research analyzes consumer adoption and usage of technology.Prior to founding Reticle Research, Rubin was executive director of industry analysis for consumer technology at The NPD Group, a market research firm well-known for tracking sales of electronics, PCs, cell phones and other consumer gadgets. Prior to joining NPD, Rubin was vice president and chief research fellow at Jupiter Research, where he founded the firm’s first technology...

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UK carrier Three is in 'no rush' to switch on LTE, probably won't do so until Q4Mobile

Three's CEO could teach Vodafone's CEO a thing or two about diplomacy. Whereas Vittorio Colao dismissed British LTE users as "technofreaks", Dave Dyson has merely said that he's "fairly relaxed" about upgrading Three's network. During a quarterly earnings report yesterday, he said he's in "no rush for LTE" and told people not to expect Three's newly acquired chunks of LTE spectrum to be brought to life until Q4 of this year. He intends to wait and see how O2 and Vodafone position themselves, and that's fine -- just so long as he sticks to the earlier promise not to charge extra for unlimited LTE data.

What's Past is Prologue a look inside the future of Lockheed MartinAlt

I receive a terse invite from Lockheed Martin that asks me to take a "glimpse into the future," but it doesn't mention whose future it is. I could write about what I know of the American defense contractor on the back of a postage stamp, but a cursory Google search fills in some of the blanks. The company reportedly receives around 7 percent of the US military budget on its own - and with that, my imagination runs rampant about what I'm likely to see. Dreaming of playing with laser pistols, intelligent cyborgs and giant robots, I tell them I'm coming. A few days later, I turn up at the Honourable Artillery Company in London's glitzy financial district, a miniature castle that's dwarfed by the gleaming skyscrapers that surround it. In a way, the landscape is telling, since the occupants of those buildings can shoulder some of the blame for the current financial crisis - while across the street, Lockheed Martin is preparing its cost-cutting response. Two hulking vehicles guard the entrance off a small courtyard, and through a window I see a plush room full of red velvet and leather, stuffed with computers and pensive, well-dressed operators. I wonder if I'm being vetted as I amble inside, my now-sodden socks and matted hair marking me out as unthreatening -- just as long as I promise not to get out my camera. As I'm ushered inside and the tour begins, I'm expecting to see jetpacks and robots, but the reality is much different. Not even this industry is immune to the world's financial problems, and my tour would reveal that its future lies decidedly in our past. Build Whatever you Want The tour guide for the night is the affable Dr. Paul Townsend, Lockheed's head of technology in the UK. At first blush, he makes for an unlikely geek, resembling a pro athlete rather than the professorial stereotype. The first demonstration he shows us is clearly one he's proud of -- a form of 3D printing that was conceived as a way to save a small fortune in material costs. Cost saving may be the reason for its genesis, but this technology could have the potential to change the way the company makes a wide variety of things in the future. Manufacturing the highly specialized components the company uses requires ingots of raw materials (say, titanium) to be machined down to the correct shape. That process is enormously wasteful, and the company needs to reduce its resource-spending where it can. With that in mind, it's been investigating whether or not it's cheaper to employ 3D printing, which only uses what it needs, limiting waste. Wire and Arc Additive Manufacturing (WAMM) is, in short, 3D printing with metals. While that technology isn't new, the current process is difficult and inflexible, requiring a static, vertical welding head that drops globules of hot metal down to create a shape. However, as the head can't move, it can only build the most basic of rigid structures, and would have difficulty dealing with anything as complex as a curved wall. WAMM, which was developed in partnership with Cranfield University, uses a thin wire of titanium that is threaded through a movable arm. Melted at the tip, it can then create objects of any shape as long as they are not bigger than the reach of the mechanism. While it's currently a lot slower than traditional manufacturing, very little of the hugely expensive metal is wasted on the engineering room floor. Thanks to its flexibility, it's also capable of producing significantly more complex shapes than can currently be achieved with 3D printing. Holding the objects, they have an almost alien quality thanks to the piecemeal nature of their construction. They feel more like rocks or calcium formations than something that's emerged from a foundry, given the thousands of droplets of metal that it took to put them together. However, if the company needs a component to be smooth, the pieces can be sanded down to be indistinguishable from a traditionally manufactured piece of hardware. While it currently only exists within the confines of a university laboratory, it could potentially herald a staggering revolution in manufacturing - not to mention the environmental and financial benefits that accompany it. However, this demonstration was something of an outlier during the tour, with many of the other projects on show having been cooked up in response to a more pressing threat - the dwindling size of procurement budgets. The iPod Tank A break in the rain means we can now go outside to meet an unnamed soldier who is standing proudly in front of a Warrior Tank. The Warrior Tracked Armored Vehicle (to give it its proper title) is the British army's frontline tank, and has been the primary transport for combat troops since the early '80s. Why then, is hardware invented before my parents' marriage (let alone my own birth) being heralded as the future? In response to the worsening financial crisis, the government began reorganizing the army to make it smaller, more flexible and, crucially, cheaper. The program was eventually named "Future Force 2020," and as part of it, spending on heavy weaponry was cut while emphasis was placed on upgrading current hardware. As such, the aging fleet of tanks, now into its third decade of service, is in dire need of a refit, and Lockheed won the £642 million ($1 billion) contract to ensure it's battle-ready all the way through 2040. Lockheed's testing manager, Steve Timms, described the challenge as trying to reinvent the traditional tank hardware to behave "much more like an iPod." The company has developed a new series of modular systems that can be swapped in and out to change its functionality over time. In his mind, this functionality is analogous to "downloading apps to make your iPod do different things." As such, depending on the need (or threat), different technologies like an anti-IED (improvised explosive device) or electronic warfare platform can be added and removed in a matter of hours. On the nuts-and-bolts side, the Warrior is gaining an improved forward cannon, which, for the first time, can fire multiple types of shells for "hard" and "soft" targets. To balance out such power, it's getting a new stability system that negates the recoil traditional tanks suffer from. It's at this point that our anonymous soldier chips in, pragmatically explaining that a current tank battle between moving targets is "about as accurate as a drive-by shooting." However, with the addition of a new computer targeting system, it can calculate the tank's own movement, terrain, the enemy unit's travel and the recoil factor to vastly improve its accuracy. In an effort to provide crews with as much situational data as possible, the refreshed tanks are now lined with cameras and sensors. That way, transported soldiers (up to five per vehicle) know what they're about to encounter - whereas, previously, they leapt into the unknown. The crew stations inside the vehicle are now networked, allowing commanders and turret-gunners to share information and offer a level of redundancy should a system fail. The Loyal Robotic Mule Our nameless soldier now steps forward to explain a project he's clearly more excited about - a smaller vehicle that's stationed beside the Warrior. The soldier, who is clearly speaking from experience, tells us modern troops need to carry a huge amount of gear on their backs, but that means they're far less effective during attacks. If they come under fire in the field, they're meant to gymnastically leap to cover and return fire - however, the sheer weight on their shoulders means soldiers could do little beyond "dropping to the floor where they stood." Naturally, that's not a useful combat tactic, since it's unlikely they'll be given the time to free themselves from their burdens - all the while presenting an easy target for their opponents. The solution? The SMSS, a diesel-powered pack mule that's capable of carrying troops' gear like a robotic Sancho Panza. The six-wheeled truck carries up to 544kg (around 1,200 pounds) of gear over 200km (124 miles) on a single tank of fuel. Unlike other transports, the SMSS straddles the line between autonomous car and self-aware robot, thanks to the bank of sensors and cameras that cover its face and let it self-navigate, make decisions and even find its way home. In ordinary circumstances, it can be directed with an Xbox 360 controller, sent on missions with an Android tablet or even lock onto a single soldier and follow them wherever they go, like a terrifyingly loyal dog. Its autonomy stretches as far as being able to find its own way past obstacles it cannot traverse. That way, if the soldier it's following hops over a chasm or through a narrow passage, it'll dash off to find the easiest route around. Thanks to its hefty hydraulic drives, up to two wheels on either side can be destroyed and it will still function. It can also be pressed into service as a medical transport, conveying two stretcher-bound patients (and a medic) to safety. It's currently being actively deployed in combat situations as a nighttime ferry. Thanks to its quiet engine and night vision, it can also carry supplies to forward positions from a main base without an escort. Saving Money in the Simulator Back inside, it's time to look at the company's simulators, which are designed to save money by reducing the amount of time (and fuel) troops have to log in real hardware. While the simulated tank battle may resemble something out of the halcyon days of DOS games, the software behind it is extraordinarily complex - modeling every element of the action, from the behavior of enemy tanks to the movement of the flora and fauna. Then it's time to take a look inside the claustrophobic vehicle simulator itself, a white box surrounded with cameras on the outside, its tiny cabin packed with screens and controls. While the company declined to go into specifics as to the hardware power both were using, I could spot a few brand names on our travels. In fact, Lockheed Martin uses a surprisingly large amount of consumer hardware in its everyday activities, where you'd expect to see over-engineered, custom gear. During the tour, I spot Dell desktops and servers, Panasonic Toughbooks and a table of 24-inch Wacom Cintiqs being set up for another exhibit. The primary joystick in the simulator is remarkably similar to the Logitech 942, and Townsend spoke openly of "human factors" that enable users to pick up skills faster because we've grown up with this technology - explaining the use of Xbox and PlayStation controllers. As such, many of the newest recruits have logged hundreds (if not thousands) of hours on their consoles, and so training reflects this. It's also beneficial from a cost perspective, since such tools have been designed by Microsoft and Sony to withstand the violent excesses of jam-smeared children and are so cheap (in military terms) that they're essentially disposable. Eyes in the Sky Our next stop on the tour is to meet David Stanton, representing the company's (reported) £1.15 billion ($1.9 billion) contract to upgrade the British navy and air force's Merlin helicopters. In the same way that the Warriors are being refitted to avoid splashing out on new tanks, these vehicles are being tweaked to save £500 million ($805 million) replacing the soon to be mothballed fleet of Sea King choppers. In my mind, this seems a little odd, purely because you'd have thought he'd be pushing to deliver a new vehicle rather than get involved in the messy process of dealing with another company's (Westland at the time) hardware. When I ask him, he seems a little resigned to the answer, saying that Lockheed operates "in the shadow of the global financial crisis" and that it's been forced to make concessions. So, rather than building new craft, it's doing its best to package new technology in a way that nations across the globe can afford. The company's challenge is to turn the Merlin, an anti-submarine and search-and-rescue vehicle, into a craft that can also take over the Sea King's airborne surveillance and control duties without breaking the bank. As such, Lockheed is adding capacity for modular systems that can "roll on and roll off" (RORO) the craft depending on the mission's need. It's here that the company is demonstrating the first system to accompany the platform; Vigilance. It's a new radar setup that turns the helicopter into an all-seeing eye, capable of surveying the 360-degree space around it in order to direct fighter planes in combat. It uses a pair of radar arrays, each with a 120-degree field of view, from Lockheed's competitor and occasional partner, Northrop Grumman. The array itself is a steel hoop around 20 inches in diameter, the surface of its aperture teeming with rectangular rods. The hardware is put into a fiberglass pod, which hangs on either side of the choppers fuselage, on a gimbal, that lets it turn to cover the extra 60 degrees (for a total of 180 degrees of coverage each). The range of the equipment is classified for military reasons, but a demonstration showed that a helicopter, so equipped, could hang back and be the eyes and ears of fighter planes battling ground or aerial targets around it. While it's being tested and implemented over the next year as part of this program, Vigilance can be fitted to any vehicle that can accommodate the two control consoles and supply the necessary power. The hardware, which ships on a pallet, includes 4-foot-high steel boxes with a built-in desk that sports a rubberized keyboard and rollerball mouse. Operators can watch a 24-inch primary monitor above their heads and two 10-inch displays mounted at eye level. The left of the two smaller screens is touch-enabled, offering customized controls, and the right is a secondary display that lets you see detailed information not visible above. Once the program has been completed, these helicopters will become the airborne equivalent of a socket wrench - capable of undertaking a number of previously impossible tasks. Stanton has said that while the timescale will vary depending on the specific make and model of each craft, the company is confident it can upgrade a Merlin in less than two weeks, and after that the RORO systems can be changed in "around two hours." The Real, Real-Time Simulation The final stop on our tour is a pair of software projects that, uncharacteristically, aren't concerned with saving money as much as providing information. The Land Environment Air Picture Provision (LEAPP) is a £100 million ($160 million) system that uses ground-based radar stations to give mission commanders a view of their environment. Development began in 2008, and the first systems are being delivered to the army at some point this year. The trucks carrying the stations are the size of a shipping container and can either move around under their own steam or be airlifted by a Chinook helicopter. They provide mission commanders with real-time data, enabling intelligence staff to mark friendly and hostile craft, coordinate assets and see the whole landscape as if it was cooked up inside a computer. In effect, all of that hardware has one purpose: to create an isometric view of the battlefield as if it was a real-time simulation. When I commented on the similarity between this and a game like Command & Conquer, the firm pointed out that operators are deeply aware this isn't a game. However, Lockheed's Systems Engineering Manager, Michael Harper, does concede that game design has heavily influenced the software's development. In his mind, "since people come from a world of Google Maps," it's faster and cheaper to embrace the user interface Google developed - because to do otherwise would require jarring retraining. Harper then directs us to the other end of his exhibit, where he is demonstrating Automated Sense and Warn (AS&W), a system that has been active since 2008. It's a defensive system that uses a series of radar scanners around the perimeter of military bases (like Camp Bastion, the British military base in Afghanistan that was recently attacked by Taliban forces) to watch for incoming threats. If it detects a mortar shell or rocket on approach, it sounds an alarm in the area where it's expected to land. While it can only give a few seconds of notice before impact, it's already proven its worth in the field - with Harper saying that at one (unnamed) base, it's increased survival rates by 80 percent. Some may be surprised to learn that the operating system that enables both of these vital programs is actually Windows XP. Unsurprisingly, Lockheed's insistence on using off-the-shelf components is both a benefit and a burden in situations like this. While it can rely upon its deep, highly secretive partnerships with companies in the industry, it's also a victim to those product's flaws. It has to contend with the lifecycle of the software - giving the company an extra headache as it tries to maintain support for the OS when Microsoft turns off the lights in 2014. The Shape of Things to Come As I leave, the heavens open once again, and as I dash back to the tube, I'm left wondering what the company is trying to show me. Of course, the headline here is that Lockheed is offering taxpayers value for money, but that's not what's caught my eye. It's certainly interesting to note just how much the likes of RTS games and Google maps influences its software decisions - as if the worlds of consumer and military tech are somehow merging. Given that these are just the secrets the company feels comfortable showing off to journalists, it's clear that the really juicy projects remain hidden behind closed doors - I just hope that they're not as fixated on our past as some of these have been. Images courtesy of Lockheed Martin This piece originally appeared in Distro #65.

Google retiring iGoogle, Google Mini, others for 'spring cleaning'

To everything (Turn, Turn, Turn). There is a season (Turn, Turn, Turn). Sometimes those seasons can get a bit convoluted, however -- or such is the premise of Google's "Spring cleaning in summer" post, outlining the end of a handful of tech offerings. Because heck, even a company as big as Google has to pick its battles. On the chopping block this time out are the Google Mini enterprise search system, the Google Talk Chatback widget, Google Video, iGoogle and the Symbian search app. Of course, the company won't be leaving people hanging entirely. Google's pushing users toward existing properties like the Meebo bar for Talk Chatback and YouTube for Google Video (which already stopped taking uploads a while back), the latter of which will be fully integrated into the more popular video offering come August. More info on what all this means in the source link below.

Google Launches Drive App Data Folders, Lets Developers Safely Store Configuration Files And Other D

If you’re a developer building web or mobile apps that use Google Drive for storing information, you’ve probably found that users really can’t be trusted not to delete or move that data. Once the user does that, the app experience won’t be so great and the data that the app needs to run isn’t there to use.

Today, Google has introduced “app data folders” which are protected and can’t be seen by users within their Drive account. Other apps can’t see the files either, so there is now an added layer of security to fight off bad actors who build apps to swipe information or do other damage.

The Google Drive team suggests that these app data folders are used for configuration files, app state data or files that shouldn’t be modified in any way. Even though users can’t see the data, they can see how much space it is taking up on their devices and clear the data at any time.

Here’s what you’ll see as a user in your manage apps panel:

Additionally, “custom properties” can be added to Drive files that will allow developers to create searchable fields that are either app-specific or are to be shared with other apps.

More information about the Drive SDK can be found on StackOverflow, a site oddly not owned or operated by Google.

[Photo credit: Flickr]

Crunchbase

GOOGLE GOOGLE DRIVE Company:GoogleWebsite:google.comLaunch Date:September 7, 1998IPO:NASDAQ:GOOG

Google provides search and advertising services, which together aim to organize and monetize the world’s information. In addition to its dominant search engine, it offers a plethora of online tools and platforms including: Gmail, Maps, YouTube, and Google+, the company’s extension into the social space. Most of its Web-based products are free, funded by Google’s highly integrated online advertising platforms AdWords and AdSense. Google promotes the idea that advertising should be highly targeted and relevant to users thus providing...

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What Games Are Here Come #8220;Local #8221; Mobile Games

Editor’s note: Tadhg Kelly is a game designer with 20 years experience. He is the creator of leading game design blog What Games Are, and consults for many companies on game design and development. You can follow him on Twitter here.

When we talk about “social” in the context of gaming, we mean one of two ideas. The first is using social networks to distribute games, connect players and provide server-hosted fun over the long term. These kinds of game are often better described as “parallel,” as they are essentially single-player roleplaying games that sometimes connect to other players out of necessity.

The other kind of social is when you gather with people in a physical play area, enjoying each others’ company as much as the play of the game itself. Sports, board games, card games and tabletop roleplaying games are social games in this sense. A similar experience can be had by playing a console game like Halo with four joypads, Wii party games, or local-area-network (LAN) games. To distinguish that experience from the Zynga-esque social game, I label these kinds of activity “local” games.

Unlike social games, local games are usually multiplayer. Your local Bridge club, pub quiz, football team or Dungeons and Dragons group gathers together to play together, and their games have a high degree of interplay. In addition to social benefits (i.e. having a reason to meet people), the fun of local games is all about coordination, team psychology, and the dynamic that plays out there. This can lead to some of the most delightful or emotional game experiences that are possible to have.

Local multiplayer is also different to online multiplayer gaming. In a local game of Halo, for example, players yell for help, shout out the most-feared player’s location and haze each other. However in the online game you’ll get called all manner of names, insulted for your perceived race, gender, or sexuality. You’ll also encounter zero sense of spirit, shameless cheating, and more goading. Absent the stares of others and the social moderation that that brings about, people can be amazingly childish. This is why many gamers prefer to play on a LAN or with friends on a couple of consoles rather than online.

However local games have been slow to adapt to a more mobile computing landscape. Traditionally this is because they have often been constrained by equipment as well as geography. In order to play a LAN game you need a bunch of PCs, a router, and so on. These are not impossible to attain, but are more of an impediment than a game that you might play with a smartphone. So local games have often been seen as a more dedicated form of gaming than others, more of a niche for the passionate.

For a while some of us thought that location games (i.e. Foursquare) might solve that problem, but that hasn’t worked out. Location turned out to be a different kind of problem, one which so far has proved a damp squib from a gaming perspective (they will probably find their place once augmented reality matures a little further).

Similarly, turn-based games seemed to be the way forward, but while you can play a turn-based game of Carcasonne on your iPad with a friend in the pub, it’s a bit forced. It’s better to play the actual board game version, much like playing a board game version of Scrabble is always going to be a better experience than a digital one. There’s something about the tangible quality of cards and pieces that adds to those games in a way that digital versions never match.

The native experience that video games provide is more fluid than most board games, more active like sports, more dynamic. The gap for local mobile games is about providing that active engagement, much like playing Mario Kart but in the pub or cafe rather than on your couch, and at a cost of almost nothing to players. With smartphone and tablet technology getting better all the time, delivering powerful computing to users’ pockets for less, I reasoned 18 months ago that we would eventually see real local games start to emerge.

Last week I encountered the first game that I think really fits that bill: Spaceteam.

Spaceteam is an iOS game for 2-4 players. The setup is that each player is a member of a spaceship crew and – in cod-Star-Trek fashion – has a bunch of ship controls in front of them. The objective is to survive a continuous series of increasingly difficult rounds by responding to instructions issued by the game to set controls correctly before time runs out. But (and this is the clever bit) the instructions you see on your screen are generally for the other player to action. So you have to rapidly communicate with one another, much like a Trek crew yelling orders during a tense space combat.

The game elaborates on that theme further by making the names of the actions intentionally humorous (“Enable Holobib! Set Moontwig to 4!”), which players have to say to one another. It also uses the gyroscopic features of the devices for asteroid attacks or wormholes, so players have to shake them back and forth or flip them in unison. The overall experience is frantic and hilarious (and also free).

Spaceteam is an example of what I call a “founderwork.” Founderworks define new territory in the games industry, proving that there is a new avenue to explore or a new way of looking at play. Sure, the game is geeky, and likely only appeals to a certain subset of players. It is also a little thin. Like Draw Something or Wii Sports, Spaceteam is very delightful for a short period of time, but then you’re kind of done with it.

However the same was true of early browser RPGs, and they went on to form the basis of the social game revolution. Ditto the original Bejeweled and the casual game revolution. The seeds of the next big thing are often located in the barely-noticed game that turns a few heads with a neat idea, and then other developers expand upon it and fix its problems. I think Spaceteam may turn out to be one of those games, but local-mobile is not quite there yet.

The biggest problem that remains is coordinating people. As an old-school Dungeons and Dragons game-master, I know how hard it is to get people together to play a game – especially as they grow older. Where sports and big game clubs (as in for Bridge or Poker) solve this probem with dedicated venues, digital gamers often want their games to be available on their schedule. Spaceteam works great if you get your friends to install it on their devices, but you have to actually tell them about it first. This makes adoption a problem.

What would be game-changing is if a platform holder like Apple got involved. iOS 6 devices all have Game Center and Find My Friends functionality built in, so how hard would it be to close the loop for local games in iOS 7? Perhaps a “Find A Game” function that scans your local area and finds players of the local games you like. A service that matches players of the same game together by location as well as scores, maybe even offering a way to meet up. The ability for players of a game like Spaceteam to self-organise in the gaming equivalent of flash mobs.

Maybe not exactly as I’ve described, but there’s something to an entire field of players discovering other players and finding it easy to meet and play which feels not too far away. Like a gaming version of dating apps, helping people come together in social settings to play digitally… That could be a real revolution.