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Approximately 60% of Arabic-speaking Internet users dislike using an Arabic keyboard, according to Yamli, a Massachusetts-based startup that launched last year. CEO Habib Haddad explains that many users have to use a Latin keyboard for their jobs or school, which makes the keyboards impractical (and many think they’re just hard to type with). When it comes time to type in Arabic, many Internet users have adopted a phonetic web language that spells out Arabic words with these Latin letters. The result, Haddad says, is messy - especially when it comes to making sounds that don’t exist in English.

Yamli has built a system that solves this problem. Users enter words phonetically into a special text box that displays a list of matching words that are written in Arabic. This allows them to keep using their Latin keyboard, without having the resulting text look like gibberish. Because there are around 22 dialects in the Arab world, Yamli has to deal with multiple different phonetic spellings, which Haddad says it does with around 95% accuracy.

The company launched an Arabic frontend to Google in November 2007, and released an API in March 2008. The system was recently integrated into popular Arabic portal Maktoob (which Haddad likens to an Arab Yahoo). In the future, Haddad says that the technology will be applied to other platforms, like mobile phones. And it only has two employees, both co-founders.

The company seems like a likely acquisition target for Google or any other company looking to expand Arab-speaking nations, where Haddad says development has been relatively slow.

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Yes, the meme is just getting started it seems. 1938Media does his own take of the Team Cyprus video, set to the tune of AC/DC’s HighWay To Hell:

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A group of twenty or so tech elite were partying 1999-style in Cyprusthis last week, and posted a lip sync video of the Journey song “Don’t Stop Believing” a couple of days ago. Among the group were Brittany Bohnet of Google, Mike Hudack of Blip.tv, Dave Morin and Aaron Sittig of Facebook, Sam Lessin of Drop.io and Jessica Vascellaro, the Wall Street Journal’s Silicon Valley beat reporter.

Team Cyprus: Alcohol + Bad Judgement + Really Poor Timing

The video was released just as Silicon Valley really began falling apart and the UnParty began in earnest - eBay’s 10% layoffs, Google’s stock nosedive, Yahoo’s self destruction, VC’s bunkering down, etc. And more than a few people thought the ostentatious partying was a little, ahem, tasteless in light of the meltdown back home.

Now that video has been taken private, which is what it should have been marked as in the first place. But it’s too late - the video has spread to YouTube and other sites, and won’t be disappearing again. As I said yesterday, fair or not the video video will always be associated with the end of Web 2.0.

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What has ex-Yahooer and Delicious founder Joshua Schachter been working on since leaving Yahoo last June? At least one project is a GreaseMonkey script that shows readers the political leanings of blogs and news sites on Memeorandum, a news aggregator.

Political sites are usually very biased, but the casual reader often doesn’t know which way a particular site tends to rant. With the new script, also available as a Firefox plugin, sites are shaded towards blue (whiny cowards) or red (warmongers) depending on their linking behavior.

Andy Baio, who’s been working with Schachter on the project, describes it:

The colors don’t necessarily represent each blogger’s personal views or biases. It’s a reflection of their linking activity. The algorithm looks at the stories that blogger’s linked to before, relative to all other bloggers, and groups them accordingly. People that link to things that only conservatives find interesting will be classified as bright red, even if they are personally moderate or liberal, and vice-versa. The algorithm can’t read minds, so don’t be offended if you feel misrepresented. It’s only looking at the data.

Microsoft has been testing a similar product, based on different technology, called Blews.

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It’s time to start slamming the reality of the Silicon Valley situation home to everyone. Seesmic founder Loic Le Meur lets seven employees go, he says, which is more than a third of the company. This comes on top of three employees let go a couple of weeks ago.

“We cut everything that wasn’t outsourceable, core or absolutely necessary for the company.”

Le Meur says the company isn’t in dire financial trouble yet, noting he raised a $6 million round just a few months ago. But he’s planning for a bleak fundraising future.

I am an investor in the company.

Tough times. Tough decisions.also read my blog post http://www.loiclemeur.com/english/2008/10/tough-times-tou.html

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Since the launch of the iPhone App Store, we’ve seen a wave of geo-aware social networks that make use of the phone’s GPS (or in the case of the original iPhone, pseudo-GPS). Each of these apps aims to help facilitate social interaction by locating nearby friends, points of interest, or people you might be interested in meeting (but might not know yet). There’s little doubt that some incarnation of one of these apps will help shape the future of social networking, but there’s still a huge geo-aware market that has yet to be tapped: Games.

Parallel Kingdom, launching at the end of the month, is set to become one of the first massively multiplayer online games (MMO) to hit the iPhone platform and Android platforms (both platforms will share the same in-game network). MMO’s have been tremendously popular on personal computers with mega-hits like World of Warcraft, and have proven to be lucrative with subscription models that feed off their addicting gameplay. Parallel Kingdom is hoping to take this success to a mobile platform.

At first glance, Parallel Kingdom doesn’t seem very impressive - at least from a visual stance. The game’s interface consists of basic sprites that are overlaid on top of a Google Map. Each icon depicts a player character, an enemy, or an item. But while the game could use some drastic graphical modifications (especially given the 3D games already available on the iPhone), the technology and concept behind it is where the real excitement lies.

The game uses your phone’s GPS to detect your movement across the map, and each change in physical location corresponds to a change in the game’s location. For example, our local Starbucks might be shown to be infested with monsters, but a drive down the street may reveal an area loaded with riches and friendly characters. And while the game uses physical location to determine your in-game location on a macro-level, you’re still allowed to move within a designated area without having to leave your seat (you could explore a few blocks around your workplace without having to leave the office).

For now your actions are pretty limited: you can pick items (like weapons or gold) off the ground, talk to people, and attack things. The game currently lacks a skill or level system, so all combat is dictated by how much you’ve upgraded a weapon. This may be fun for a while, but the game won’t be nearly as addictive as World of Warcraft until it implements more advanced leveling systems, giving users an incentive to play more often (the game’s Director Justin Beck says that these features are on the way). The game is going to be free at launch, with plans to release a subscription based version in the future once the game’s feature set is more fleshed out.

I think Parallel Kingdom and similar games have a chance to be huge - perhaps even more popular than the social networks described above. While geo-enabled social networks may be fun for networking and dating, many people will probably only use them casually. Online games have the potential to be much more addictive, and lucrative (most games can charge around $15 a month). That said, I think if Parallel Kingdom is going to be the game to really break this market open, it will need to adopt an entirely new graphics engine that can leverage the iPhone and Android’s power to display the 3D graphics these gamers are accustomed to.

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It’s Elevator Pitch Friday, which means another startup has created a video that’s worth showing you. This week’s presentation comes from Palo Alto Software, a software company startup that wants to make it easier for organizations to manage and collaborate using e-mail, to save time and be more productive.

Palo Alto Software wants to make organizations more efficient, by taking community wide e-mail boxes, such as info@, sales@, or admin@, and applying logic and analytics against them. For organizations that deal with large quantities of e-mail, managing that e-mail can become a task onto itself. Palo Alto Software’s E-mail Center Pro automates this task, freeing employees up to focus on the content of the e-mail instead of just managing it. E-mail Center Pro is sold through a Software as a Service model, with pricing based upon e-mail volume.

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Apple has released a statement that may affect those of you with newer MacBook Pros with Nvidia GeForce 8600M GT graphics cards. Said graphics cards have been known to be faulty and may cause video to be scrambled or distorted. Mine is doing just fine - BTW.

In July 2008, NVIDIA publicly acknowledged a higher than normal failure rate for some of their graphics processors due to a packaging defect. At that same time, NVIDIA assured Apple that Mac computers with these graphics processors were not affected. However, after an Apple-led investigation, Apple has determined that some MacBook Pro computers with the NVIDIA GeForce 8600M GT graphics processor may be affected. If the NVIDIA graphics processor in your MacBook Pro has failed, or fails within two years of the original date of purchase, a repair will be done free of charge, even if your MacBook Pro is out of warranty.

Specific products affected:

MacBook Pro 15-inch and 17-inch models with NVIDIA GeForce 8600M GT graphics processors
MacBook Pro (17-Inch, 2.4GHz)
MacBook Pro (15-Inch, 2.4/2.2GHz)
MacBook Pro (Early 2008)
These computers were manufactured between approximately May 2007 and September 2008

Who wants an Nvidia chipset in their MacBook now? Heh.

Nvidia would like to have have their say in the matter, so they don’t look like jerks, which is sort of alluded to in Apple’s statement.

NVIDIA has worked diligently with Apple, as we have done with all of our customers and partners, to analyze notebooks and determine if there are potential problems.

Our analysis showed that a failure in an Apple MacBook Pro notebook is remote.

However, the OEM is ultimately best able to assess the reliability of their systems.

Apple, like other OEMs, decides on their own how to handle their warranty and repair programs.

Regardless, we stand by our products, thus the reason why we set aside such a large reserve, and we have and will continue to work closely with Apple and their customers..

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Just because you run a private company that does not have to file quarterly financial statements with the SEC does not make it okay to cook your books. The CEO and CFO of Seattle-based CRM firm Entellium found that out the hard way. They were arrested by the FBI earlier this week for inflating their revenues and then lying to their board about it. The company appears to be toast. It fired two thirds of its staff of 60 people in Seattle, and its Website is down. We are putting it in the deadpool.

The CEO, Paul Johnston, and CFO, Parrish Jones, kept two separate set of books. One they showed the board, and the other was the real one. The fake one inflated revenues by $11.7 million over the past three years. For instance, in 2006 they told the board that revenues were $3,950,362, but they were really only $582,079. In 2007, the fake revenue number jumped to $6,291,705, whereas the actual revenues were only $1,446,238. This deception continued until September 26, 2008 when the VP of human resources, Melisah Wojtacha, came across the fake board books while cleaning out the desk of a former sales VP.

The scandal in Seattle is particularly embarrassing for Ignition Partners, the VC fund made up of former Microsoft hotshots who put in $19.7 million of the total $50 million that Entellium had raised. Ignition’s Jonathan Roberts sat on Entellium’s board (as did former Cisco CIO Pete Solvik, now a managing director at Sigma Partners). Did they not have outside auditors verify the accounting?

Ignition can kiss that $20 million goodbye.

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The entire stock market is taking another drubbing today, and Google is no exception. Its shares tried to rally in the morning, but are now trading below the $329 they closed at yesterday. That’s a key price level Google employees are watching because a huge chunk of their options (1.7 million across the company) were granted with a weighted average exercise price of $329.78. The options are worthless under that price. In addition to that, there are another 5.7 million options that were granted at weighted average exercise prices of $450 and above. (see table below). All told, 61 percent of Google’s stock options granted to employees are currently under water.

The rest of Google’s stock options become worthless at the average exercise prices of $275, $177, and $21 (for pre-IPO employees, who don’t have much to worry about). All of these numbers com from Google’s second quarter 10-Q and don’t reflect any options that may have been granted in the third quarter. (Google’s third-quarter earnings announcement is next week).

Only eight days ago Google’s shares were trading at $411 and three months ago they were above $450. In that time, a lot of paper wealth has disappeared and along with it incentive for many recent hires to stay. Of course, the stock could rally and everything will be honky dory again, but if Google’s market cap is being fundamentally reset along with the rest of the stock market, it could face some serious retention issues in the coming months. The free food and transportation are great perks and all, but let’s get real here. Without the financial upside those stock options represent, Google employees will start looking elsewhere.

It is a danger if the stock does not recover. On the other hand, if the economy truly is spiraling into a recession and capital is drying up for new startups, frustrated Google employees might not have anywhere else to go.

Update: How many Google employees are completely underwater with their options? As I understand it, Google grants stock options to employees during the week they are hired. The last time the stock was this low was almost exactly three years ago. So anyone hired since October, 2005 is pretty much under water. That is 75 percent of all current employees (Google had 5,000 employees three years ago, and now has about 20,000).

Update 2: Google shares rallied a bit at the end of the trading day, closing at $332, just above the watermark for some of those options. Next week is earnings. Will it bring another plunge or a rebound?

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Can’t afford a ticket to China to go visit the Forbidden City? Well, now all you need is your computer. IBM, which is a big believer in virtual worlds, and China’s Palace Museum have created an exact replica of the 178-acre Forbidden City. After working meticulously for three years to recreate every building and thousands of major artifacts, the virtual Forbidden City is now available for download (for Windows, Mac, or Linux). It’s free, although, I warn you the Mac version, at least, is a massive 275MB file.

Once inside, you can choose an avatar, dress him or her up in Qing Dynasty-era robes, take virtual tours, play Go with computer-controlled characters, call up maps, explore buildings and objects that allow you to click for deeper information. The virtual world was built on a gaming platform from Garage Games called Torque. ( I guess OpenSim wasn’t good enough. No word on whether it will be interoperable with Second Life)

So if you are looking for somewhere to weather out the current financial storm, but don’t have any money to actually go anywhere, you can spend hours roaming IBM’s virtual Forbidden City.

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When Mahalo launched about 16 months ago, we called it a human-powered search engine and began thinking of it as a Google competitor. But it’s so-called “guide pages” for topics as diverse as the Boston Marathon and Patriotic Drunk Rednecks provide not only links but quick facts, making Mahalo an editor-driven, Wikipedia competitor as well. And with a new site-wide design launching today, Mahalo sharpens its focus on the news cycle and competes more directly with sites like CNN and a multitude of news aggregators.

CEO Jason Calacanis explains how inspiration for the new design came from noticing how a core group of about 10-15,000 visitors refresh Mahalo’s homepage several times a day to check for new featured links, which change 2-3 times per day and direct users to guide pages about current events. The new design enhances Mahalo’s standing as a news aggregator by making these featured items more prominent on the homepage. A new “top news” box (see above) dominates the top left area of the homepage and displays excerpts from relevant guide pages.

But most importantly, Mahalo now features a new “liveblog” system that delivers one liners about world news as it breaks, such as “Man arrested after threatening bar patrons with a chainsaw” and “Brooke Hogan Says ‘No’ to Playboy”. Calacanis recalls how Peter Rojas pioneered the practice of liveblogging at Engadget and suggests that Mahalo is essentially applying the same technique to the entire world. Each post to the liveblog gets placed into a category, such as “Crime” or “Politics”, and most contain at least one link to a related guide page.

While 100 full time editors work to create Mahalo’s 100,000+ guide pages, Mahalo has employed only 4-8 full time employees to work on the liveblog (although they will work collectively around the clock). To spice things up a bit, Mahalo has set up a dedicated liveblog section where you can watch the employees and ask them questions as they work live on Ustream.

Calacanis says Mahalo plans to break out each news category into its own section and give each its own Ustream feed. Later on, we may also see RSS feeds for each category and a proper API to syndicate the liveblog’s news items elsewhere.

Disclosure: We have no financial interest in Mahalo. However, Jason Calacanis is a partner on our annual TechCrunch50 Conference.

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Fitbit, producer of a sleek little device that clips onto your clothing and tracks your movement throughout the day and night, has raised $2 million from True Ventures, SoftTech VC and several angels in what appears to be the company’s first round of institutional funding.

The device, set to go on sale in early 2009 for $99 a pop, uses the information it gathers about your movement to help you determine how much exercise you’ve been getting and how many calories you’ve burnt. It can also tell you how many steps you have taken and how well you’ve slept, all based on its internal motion detector.

All data gets automatically synchronized to your computer and then the web through a wireless base station, so you don’t even have to plug it in. Once synced, you can view your health reports online.

Fitbit debuted just this September at TechCrunch50 where it was a runner up for the top prize.

See a recent Beet.tv interview of CEO James Park below:

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In May 2007 I wrote “Times are good, money is flowing, and Silicon Valley sucks” in a post about how, in my opinion, Silicon Valley was ripe for a downturn.

This week, without any doubt, we got that downturn. It was different from the last downturn in that it wasn’t driven by the crazy bullishness of Silicon Valley venture capitalists and investment banks. This time, Wall Street and our government screwed everything up all on their own while we minded our own business and acquired our own instead of going public at crazy valuations.

So what exactly just ended? Easy capital to start. And that means already funded companies are going to tighten their belts in a big way, per the request/demand of venture capitalists like Sequoia Capital, Benchmark Capital and Ron Conway.

The first to go will be the bulging marketing and communications departments at all those startups - the very people who make Silicon Valley such a nasty place to be in the boom times. But as the number of startups dwindle, it won’t be so hard for them to get attention from press and users, so those marketing and PR flaks won’t be missed all that much (of course, the people without jobs won’t be happy).

We’ll look back in later years and think of this most recent boom as the Web 2.0 period, when we were wowed by the magic of user generated content, copyright violations on a massive scale, and neat little widgety things that used Javascript and Flash to turn web pages into pretty close equivalents to the old desktop apps. Of course there were other evolutions as well. Advertising technology has advanced steadily, particularly in tailoring ads to an individuals needs, and tracking them properly. This is the period that social networking as we think of it today was born, and we’ll never be rid of it in our lifetimes.

So why the use of the word ignoble in the title? Well, all this went down at an unfortunate time for a score of Silicon Valley posterboys and girls as they partied 1999 style “the Turkish Republic of Northern Cyprus in October of 2008 for a week of reflections on life, love, and the Internet.” They leave behind an absurd video that would have gone unnoticed a month ago. But this week, with the walls tumbling down, they look like a bunch of jackasses who have no idea what’s going on back at home. And this video will always be associated with the end of Web 2.0.

Goodbye, Web 2.0. I hope I never have to type those words again. Now can we please get back to work? There’s still a ton left to do before we get to Matrix-style virtual reality, the Singularity, and mobile phones with batteries that last a whole day.

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CEO_ALL_HANDS_10-7-08_FINAL - Get more Business Documents

We were able to track down the presentation that Sequoia Capital gave to its portfolio company CEO’s earlier this week (and so did VentureBeat). It’s a long, 56 slide Powerpoint message of doom and gloom in Silicon Valley that we covered yesterday along with an email that angel investor Ron Conway sent to his 130 active portfolio companies.

The final text slide reads “Get Real or Go Home.”

Benchmark Capital jumped on the band wagon today with their own email to portfolio companies. The messages are all similar - companies need to stay ahead of the curve as much as possible. Cut costs now, and raise capital if you can. If there’s someone out there willing to buy you, do it. Etc.

Of course all this negativity helps create the very downturn that venture capitalists are warning their companies to defend themselves against, perpetuating a sort of vicious cycle downward. But that’s ok, sometimes the hedge needs to be pruned. And this is what makes Silicon Valley its ugly, beautiful self.

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Yesterday Sequoia Capital and Ron Conway communicated with their portfolio companies to guide them through troubled times. Today Benchmark Capital joins the fray, with what a source says is an email from General Partner Bill Gurley to their portfolio companies (See our interview with Gurley and new partner Matt Cohler from earlier this year).

Like the advice being given by Conway and Sequoia Capital, Gurley is urging his companies to remain calm, but get tight control of their finances, starting now.

Gurley also says for companies to expect “across-the-board reductions” in valuations, and a tough market for raising money - “Basically, the cost of capital is going way up.” Hedge funds are probably out of the picture for startup financings, he says, and corporate, strategic and angel money will decline.

Gurley also notes that major opportunities will become available to those who “play the game frugally.” He says “The real key is to have a keen understanding of the game on the field and to be the one that adjests swiftly, rather than the one that moves after it’s become blatantly obvious to everyone else it’s time to move.”

The full memo is below.

The recent downturn in the public markets (now known affectionately as “the U.S. 
Financial Crisis”) is obviously on everyone’s mind.   Some of the entrepreneurs and 
executives with which we are privileged to work have reached out and asked what 
this means for private companies, the VC world, and Benchmark.   As such, I thought 
t might be a good idea to send you our thoughts on the current situation, and 
ispecifically what it means for venture backed companies. 

 From a high level, this downturn is different from the Internet bubble of 1999.  First, 
the last downturn started in our backyard.  We were the speculators; this time it is 
someone else.  This means that the “crash on the beach” wont be nearly as severe.  
In the Internet crash, many times the customer was actually another VC‐backed 
company and as such, there was a strong negative spiral.  That said, while this 
downturn might be shallower than last; it could last longer in terms of absolute 
time.  The American consumer is super‐leveraged which wasn’t true before the 
1930’s or the 1970’s.  The overall economy will have trouble gaining momentum 
ith this debt anchor, and my best guess is the contraction is not finished yet.  As 
wsuch, it might take a long, long time before we see glory days  again.  

 Like every major shift in the environment, this one will offer  opportunities as well as 
risks.  JP Morgan was able to buy two great assets as substanti al discounts with 
government assurances, precisely because they played the game f rugally while 
others were more risk seeking.  The real key is to have a keen  understanding of the 
game on the field and to be the one that adjusts swiftly, rather than the one that 
moves after it’s become blatantly obvious to everyone else it’s time to move.  Many 
companies that thrived post 2001‐2003 were simply “Last Man Standing” in their 
ndustry.  It doesn’t sound all that glamorous, but it was the exact right strategy to 
ideploy at the time.  

 It terms of defining our current situation, let’s start with the impact on the actual 
capital in “venture capital”.  The institutions (limited partners) that typically invest 
with Benchmark and other venture funds are not the ones on the cover of the 
financial news everyday.  In fact, these limited partners are typically quite 
conservative and have a very long‐term perspective.  Certainly, new precedents are 
being set every day, so it’s hard to say the word “never” in this environment.  Still, 
e are unaware of any situation where capital availability for  us or any other VC 
wfirm is in question.   

 With that said, I think access to other forms of capital that have recently been 
available to venture backed companies may be dramatically impacted.  As an 
example, one would naturally assume that the hedge‐fund rounds of late‐2007 and 
early‐2008 are no longer available.  Additionally, we would expect that 
strategic/corporate investments, venture debt facilities, and even angel financings 
could all contract considerably.  In all previous economic downturns, this was 
certainly the case. 

 
One would also expect across‐the‐board reductions in follow‐on financing 
valuations.  As financial markets deteriorate three things happen.  First, investors 
get nervous.  As such, they tend to “choke up on the bat” and be more conservative.  
We have already witnessed skittishness on behalf of follow‐on funders, as well as a 
lengthening of the time it takes to complete a fundraising.  The second reason 
valuations will fall is that the public market comparable valuations have fallen 
materially.  This will have a direct impact on exit prices, be they an eventual I.P.O., or 
M&A.  In fact, I was recently at a gathering of corporate development execs, and 
their number one concern was that private company executives have not realized 
that the scoring system was just reset (expectations too high).   Lastly, investors are 
more concerned that a protracted economic downturn will negatively impact each 
private company’s specific results, increasing the likelihood of a revenue or cash 
flow miss.   

 If we leave you with one message it would be this: financings as we know it just got 
a whole lot tougher.  Basically, the cost of capital is going way up.  This is, of course, 
a sweeping generalization.  Some of you have tons of cash, and some of you are 
profitable, so the immediate impact will obviously be less.  That said, if you do need 
to go to the market for capital in the foreseeable future, you should consider that the 
environment will be much less hospitable than it has been for the past 3‐4 years 
which have actually been pretty benign), and that this less hospitable environment 
(could persist for time measured in years not quarters.   

 Another obvious strategy is to extend the runway.  Hopefully, everyone is aware of 
exactly how many “months of cash” they have at their current cash level and burn 
rate.  If you have a method for increasing this runway, we think you should do it, and 
quickly.  .  This serves two purposes.  First, it gives you the opportunity to outlast 
the competition, and second, it puts more time between now and when you are 
forced to re‐enter the capital markets.  One could argue you should draw down your 
bank lines right now.  Why?  When you need the money, the fundi ng source may just 
say no (they did last time).  What are you going to do?  Sue them?  Take away their 
warrant coverage?  So what.  If they get cold feet – you won’t see the cash, I don’t 
are what the term sheet says.  The bottom line is that you should watch “months of 
cash” as your most important variable.  

 Be calm, but pragmatic.  The purpose of this letter isn’t to send everyone off in a 
panic.  It’s simply to convey that the rules of the game have changed.  One key 
problem is that during these market downturns, most people don’t adjust quickly 
enough.  As an example, not hiring heads that were previous TBH isn’t really a 
reduction in expenses.  Also, 10% cuts rarely lead to anything other than multiple 
rounds of cuts, which have a harrowing affect on culture.  It’s easy to mentally 
nderstand this is the right thing to do.  It is ten times harder to make the actual 
udecisions to affect change.  These are extremely hard decisions. 

 You may know that I am involved with Zillow.  They did a survey of their users to 
ask what they thought was the current impact on home prices across America.  The 
average answer was that homes in America were down 20‐30% in value.  The 
survey then asked what the user thought had happened to the value of their own 
home.  Miraculously they thought their own home had retained value against the 
odds!  Surprised?  It is human nature.  As most of you read thi s, you will be thinking 
in the back of your mind why your company is different than the average company 
like these homeowners) and why you are the exception that doesn’t need to take 
(action right now.  This could be a rationalization. 

 Recently, I spoke with an entrepreneur who as a CEO during the dot‐com crash and 
oversaw a headcount reduction from 130 to 28 (through two major layoffs), and 
eventually back to profitability and an IPO.  If you think a 10% layoff is tough, 
imagine laying‐off 78% of your employees.  It is one of the hardest things I have ever 
seen anyone do.  I recently asked him how that experience has shaped the way he 
ould advise people on running a startup.  He had a list at the tip of his tongue 
(included now): 

1. You don’t realize how fast things spin out of control. There are self‐
reinforcing negative affects in a downturn.
2. Don’t spend money until you have to
a. Don’t move out of your office until you are sitting on top of one 
another 
b. Don’t hire any incremental employee until you just can’t stand it 
c. Don’t get more capacity in your data center until your site is going down     
3. Better to be “late to the party” than to be early and run out of money
4. Line item review of the budget every month (legal, accounting, everything)
5. Not just a CEO mindset, but a company mindset
a. Everyone must buy into the process
b. But in a calm way - not run for the hills
6. Create 2 or 3 different burn scenarios - know at any point in time how many months of cash is left.
 
I include this mainly because it highlights a “very high bar” in terms of frugality.  
It’s one thing to say you don’t “waste money” and another to live as lean as you 
possibly can.  As mentioned before, in market downturns, frugality is not only a 
virtue, but also it could be the difference between survival and failure.  
 Many great companies emerged from the 2001‐2002 time‐frame.  Companies 
built during tough times typically have incredible focus, great cultures, and a 
true desire to compete and win in all environments.  For many, this downturn 
period could be opportunistic: a real chance to differentiate yourselves from the 
other players in the market.  However, it is imperative to understand that the 
environment has just shifted to one where differentiation will  likely be defined 
not by aggressiveness, but rather by adaptability.  

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With the economy slipping closer to rock bottom every day now, many of us are going to have to start cutting back on our day-to-day expenditures. Cue Voice2Insight’s The Expense Tracker, an online expense tracking system that makes entering every transaction as easy as calling a phone number and saying a few words.

Most expense trackers require users to input their daily transactions from their computers, which is time consuming and requires an impressive memory (or very organized receipts). Voice2Insight’s system allows users to call a designated number, where they’re prompted by an automated system to state the amount they’ve just spent and what category the transaction would fall under (for example, I might say “Groceries, $50″). And if you forget to leave one of the voice messages, you can manage your account from the computer as you would with a traditional system.

The service costs $15 a month ($10 if you buy six months at a time), which may be too steep for some people. I think The Expense Tracker would probably be better off adopting a model similar to Mint, offering ads for targeted financial products based on spending habits. Then again, paying for the service may make users feel obligated to use it religiously (some people swear by expensive gym memberships for this reason).

Other companies in the expense tracking space include Expensify and ShoeBoxed.

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Private equity fund Mithras Capital, which holds 1.9 million shares of Yahoo (about 0.14%), will propose to Microsoft that they buy Yahoo at $22 per share, Reuters reports. Microsoft would then unload Yahoo’s Asian assets adn non-search businesses, take $3 billion worth of cost savings and some tax benefits, and end up with Yahoo’s search business for $10.3 billion.

Microsoft is obviously thrilled to see this kind of corporate chaos at Yahoo, although they are unlikely to even respond to the proposal. Yahoo, as usual, looks like amateur hour as their shareholders conduct (or try to conduct) negotiations behind their back.

Mithras Capital partner Mark Nelson said he will send a letter proposing the deal to Microsoft and Yahoo this evening.

Meanwhile, Yahoo was down another 8.1% today, to $12.65, from yesterday’s close of $13.76.

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Since the launch of YouTube’s API and the release of Seeqpod, we’ve seen many sites emerge that allow users to create playlists of their favorite songs that can be streamed free of charge. Unfortunately, this can be a tedious task - oftentimes users are forced to recreate the playlists they already have in iTunes because the sites lack an upload function. SonicSwap, a startup that launched this week, has addressed this issue by creating a free streaming music site that can monitor a user’s iTunes music library, adjusting playlists in real time and effectively giving users access to their entire iTunes library from any computer.

The site features an interface that is nearly identical to iTunes (CEO Dan Skilken says that his artists redrew the familiar icons, but it’s tough to tell). Users can access their playlists on the left side of the screen and the main panel on right has a list of songs, with the video/music player controls at the top. The site pulls audio and video through the YouTube API, and while it comes up with a few false matches (playing back bad cover versions or karaoke), in general it is speedy and accurate.

To use the use the dynamically updating feature, users download a SonicSwap plugin that is available for both Mac and Windows. The plugin monitors songs that are currently playing as well as changes in iTunes playlists (including Smart Playlists), and frequently updates the user profile on the site. If you’re not comfortable installing a plugin, you can also upload your iTunes Music Library.XML file, but you’ll have to manaully do this each time you want to sync your SonicSwap library with iTunes.

Users can make their profiles public, so anyone can access their music library, or they can restrict it to only friends (or just to themselves). And in the next few weeks the site will roll out a widget that allows users to embed entire library and playlists as widgets into their blogs and social networks. The site generates revenue by driving traffic to iTunes and Amazon’s online stores.

For those that aren’t interested in uploading their playlists - with a plugin or otherwise- SonicShare is still worth checking out. It has a very well done interface, and seems to work just as well as its competitors, which include Songza, Favtape, and Streamzy. Another site that focuses on playlists is UPlayMe, which has created a playlist-centric social network.

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This week’s award for best marketing promotion related to the election goes to AirBed & Breakfast, the peer-to-peer pad crashing site for travelers. (You list how much per night you want for travelers to stay on your floor, and they book through the site). Today, I received a package from AirBed & Breakfast containing the two boxes of cereal pictured above: Obama O’s and Cap’n McCain’s. In addition to the physical boxes of cereal, there are two catchy jingles for each cereal (embedded below), and a Webpage where you can vote for the cereal you prefer.

What does this have to do with AirBed & Breakfast? To promote the service, the startup is encouraging people across the country to put up get-out-the-vote volunteers for each campaign. Hosts can order a box of whichever cereal they prefer and serve it for breakfast. Except each box costs $39, and the company only made 500 of each. (If they make more, that could be their business model, at least for a month).

I just really like the design. The front of the Obama O’s box is stamped with “Hope In Every bowl” and on the back it calls itself the “Breakfast of Change.” The McCain character on the Cap’n McCain’s box is appropriately wearing a naval officer’s uniform, and the side of the box sings the praise of eating squares (inside the box are repackaged Quaker Puffs; the Obama O’s are really Honey O’s). The copy on the side of the Cap’n McCain’s box could have been written by his campaign:

Os may look pretty, but have you ever noticed there’s something missing? That’s right, there’s a hole in the middle of every O. With Cap’n McCain’s you get a whole piece of cereal in every bite.

It also points out that “Squares Are Stackable” and that “Squares Keep America Regular.” But the Obama O’s jingle is catchier. Have a listen:

 Standard Podcast [20:28m]: Play Now | Play in Popup | Download

 Standard Podcast [20:28m]: Play Now | Play in Popup | Download

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