Author: Liz Gannes

5to1, a company founded by former Fox Interactive executives including Ross Levinsohn, is out raising funding again. The San Francisco-based startup helps publishers find better ads for their sites, and has raised the first $68,000 of what looks to be a $3.45 million convertible note, based on an SEC filing from today. 5to1, which launched last year at the TechCrunch50 conference, has mostly kept quiet except for filings popping up about its multiple funding rounds.

Former Fox Interactive chief strategy officer Jim Heckman is CEO of 5to1, while Levinsohn, who is a managing partner at Fuse, is a co-founder and co-chairman. The two-year-old company had previously raised $6.3 million from Fuse Capital and Prism VentureWorks in multiple bits and pieces across the last couple years. (Om likes to call startups with venture capital habits fundinistas.)

In response to TechCrunch commenters who doubted 5to1 for raising so many little chunks of money, Heckman said in December that it was all part of a master plan. His strategy was to avoid founder dilution as the company found traction:

The smart thing to do in this environment is to take small chunks, BEFORE needing it – and prior to B round (B’s today are a cap-table-destroying meat grinder).

To avoid dilution and distracting process by “extending” runway is a proven way to go – especially if you’re venture is showing promise.

5to1 allows publishers to personally pick ads that they like or seem likely to do well on their sites to fill remnant slots. It remains an invite-only service. The company said in December it had 400 million uniques across 30 distribution partners.

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Coming off the TechCrunch Disrupt conference this week, one of the interviews that sticks out most in my mind was that of Yuri Milner, CEO of the Russian Internet holding company Digital Sky Technologies, by veteran TV host Charlie Rose. Milner has quickly made a name for himself by investing hundreds of millions of dollars in hot tech properties Facebook, Zynga and Groupon. But it didn’t seem like Milner had any sort of overarching philosophy, agenda or insight into the technology market.

The only observation he offered that struck me as novel was to measure a company by dividing the age of its founder by its estimated market cap. For Facebook, Milner said, that ratio is close to one, as Mark Zuckerberg is 26 years old and the company is worth $25-$26 billion, in Milner’s opinion. “So for every year of his life Mark Zuckerberg was producing $1 billion of value,” he said. But while Groupon’s CEO is also under 30, Zynga’s Mark Pincus has been around for more than a few decades — so this doesn’t really describe a consistent investment theory. (Maybe Milner was hoping he’ll be able to get a stake in ChatRoulette and its teenage founder to offset his mean age?)

When Rose asked who his biggest influences were, Milner named Zuckerberg, Pincus, Kleiner Perkins VC John Doerr and Accel VC Jim Breyer, calling them “the smartest people I’ve ever met.” Frankly, I was surprised. I mean, obviously, these are some of the leading thinkers and doers in technology. But to me this seemed a little light — after all, Milner invested in Facebook a year ago today, and wasn’t a significant adviser to the company before then. Shouldn’t he have some deeper and less clubby mentors or models?

By playing dumb, Milner is making some of the smartest investments possible. It doesn’t serve him to go up on stage and wax about the “third wave of innovation” like Doerr had done before him. Taking a respectful back seat while providing money to allow startups to operate freely, cash out employees and avoid going public — “one to three years of run to really focus on product,” he said — is a valuable and effective approach. It’s how a virtual unknown gets a stake in these companies, unlike Twitter’s last massive round, which came from the likes of Morgan Stanley and T. Rowe Price .

Still, if Milner is ever going to get a return on this investments, the IPO market has to come back. So it’s a matter of biding his time. Banker Frank Quattrone said at the conference that the public market is hungry for “category-defining, earth-shaking companies,” and cited Facebook, Twitter, Zynga, LinkedIn and Skype as examples.

But for many entrepreneurs, private funding isn’t the dumbest of dumb money. “We all know what Wall Street’s values are,” said Etsy CEO Rob Kalin on a panel Wednesday. “I don’t want those people owning my company.”

Facebook CEO Mark Zuckerberg today rejected the assumption that the social networking company wants to make user data more public because it serves its advertising business. “There’s a big misperception that we’re making these changes for advertising,” he said on a media call laying out refreshed privacy settings. “Anyone who knows me knows that that’s crazy.”

Facebook CEO Mark Zuckerberg

“We are working on building an ad business,” Zuckerberg said, “but when we are working on building products, this factors in not at all. It’s such a big disconnect.” And more than being just a matter of philosophy, Zuckerberg said, the Facebook system does not pass personally identifiable information to advertisers. “The principles of the system are we don’t give any info to advertisers. We target all the ads ourselves.”

He contended that when Facebook does share user information, it’s for the unselfish purposes of data portability, to enable other developers, including competitors, to target ads.

As for whether advertising is the reason Facebook has in the past moved some default setting to make user information more public, Zuckerberg said, “The only reason we recommend the settings we do is we think they’re the best settings.”

Zuckerberg’s defiant attitude on ads was markedly different from the rest of his presentation about better privacy controls. On privacy, he said he and his team agreed with user and media feedback. But on advertising, he said he finds articles and blogs about the topic upsetting and uninformed.

Still, this is going to be a tough battle of perception, especially as Facebook becomes integrated into more and more of the Internet, beyond “the little website we have today,” as Zuckerberg called it. While I might be inclined to believe Facebook’s management team when they say they put product first, many people are skeptical and cynical about the company, and Zuckerberg in particular.

Even what seem to be minor and quickly corrected slip-ups, like exposing user data to other sites through referring URLs, are major at the scale of almost 500 million users. And the fact is that Facebook’s monetization engine is at its most powerful when it understands user intent, something that’s increasingly precise and real-time due to the company’s work across the web. Meanwhile, advertisers are hungry for data, and brands that participate on Facebook are eager to find out more about their users.

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Facebook today announced a revamp of its user privacy controls, responding to widespread public criticism following its f8 conference product launches with systematic changes that it said came out of weeks of nights-and-weekends work by its top engineers and designers. Facebook CEO Mark Zuckerberg called the release a “modern privacy system” that reflects what the site has become and incorporates feedback from users.

“We made a lot of changes at the same time, and a lot of what we were trying to do we didn’t communicate that well,” said Zuckerberg. He acknowledged users felt there were so many controls that they were overwhelmed and didn’t feel comfortable sharing.

Here are the most important changes, which will roll out to users shortly, heralded by a notice at the top of their homepages:

The main privacy settings page (see above) lets users toggle between sharing various types with everyone, friends of friends, and friends only. Facebook gives broad recommended settings or users can click to customize. This applies to all content retroactively and all content going forward.

What other users can see about you in the directory is limited. You don’t have to share your friend list with other users, and you don’t have to share what pages and interests you have connected to and liked. Facebook warns you that you should probably share some information so that your actual friends can find you.

You can now opt out completely of the Facebook platform. If you do, you won’t be able to access any applications, but applications will then have no information about you. Particularly importantly, if you opt out, your friends won’t be able to share your information with other applications. You can also more clearly opt out of the new instant personalization feature. Lastly, in the coming month, outside applications will have to ask for items of your personal data in a much more granular manner.

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Please see the disclosure about Facebook in my bio.

The trendy philosophy for today’s web entrepreneurs is the idea of the “lean startup,” where young companies make use of readily available tools and quick iteration to figure out their business without spending much money. That idea, popularized by entrepreneurs Eric Ries and Steve Blank and endorsed by VC Fred Wilson, also has its detractors, such as VC Ben Horowitz, who argue that startups should best position themselves to win without running out of money.  So today at the TechCrunch Disrupt conference in New York City, Wilson and Horowitz debated each other.

VCs Fred Wilson (left) and Ben Horowitz flank moderator Erick Schonfeld at TechCrunch Disrupt

“Building a company is really hard so you might as well build something important,” said Horowitz, of the new and influential firm Andreessen Horowitz. He said he’s disappointed to see smart entrepreneurs pitching him on small ideas like ad targeting optimization and avoiding expensive things like hiring a sales force, all because they’re holding themselves to bare minimum expenses.

But Wilson argued that the best outcomes for both entrepreneurs and investors result from investing small amounts of money in risky ideas, and increasing the commitment as risk decreases. This ensures that founders are minimally diluted, as they can hold onto their significant stakes in the company if they don’t get desperate for funding because they’re running out of money. Even Zynga, which has raised something like $220 million in funding, isn’t exactly a fat startup, contended Wilson, as it hasn’t lost money following CEO Mark Pincus’ initial investment. Rather, those hundreds of millions have been the “insurance money” to allow Pincus and Zynga to make large risky bets without putting the company on the line.

Horowitz, besotted with the promise of dreaming big, responded by saying: “I have to pause because Fred has removed all the joy out of being an entrepreneur.” He pointed to big-thinking companies such as the electric car maker Tesla, which has raised hundreds of millions in private and government funding. “As an entrepreneur you really don’t have a choice. Often the idea and the market dictate the amount of money you need to build.” Wilson never really countered this point.

After Horowitz shot down Wilson’s self-described “fairly rigorous mathematical analysis” because it ignores the serendipity of startup opportunities, Wilson pointed out that Horowitz’ examples weren’t web companies. Sure, markets like automobiles and chips and biotech might need lots of money, but “in this sector, the web sector, I would argue there are very few ideas where the fat startup model makes sense.” This was his most salient point. Wilson also noted that managing large-scale companies takes experience, saying the first-time entrepreneurs he funded at Etsy, Twitter and Tumblr just weren’t ready. “I would not advise anybody to go fat startup if they don’t have that experience and that capability at day one.”

Asked by moderator Erick Schonfeld who made a more cogent argument, the crowd sided with Wilson. I found it surprising that the cite-the-spreadsheet argument was more compelling than advice to think big — but this was an audience of web startups, after all, where lean is the new black.

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Facebook will launch “drastically simplified” privacy controls tomorrow, the site’s VP of product, Chris Cox, said today at the TechCrunch Disrupt conference in New York City. Cox said the Facebook team has had an “intense and humbling couple of weeks” amidst outcry over confusing and invasive privacy controls. But until now — aside from the occasional condescending Q&A and avoiding-the-big-issues op-ed — Facebook has largely kept quiet.

Facebook VP product Chris Cox

Cox said that he doesn’t believe the fuss over privacy is just an overblown media story. “A lot of people really care [about privacy],” he said. Cox tried to justify Facebook’s reticence on the issue by saying the team didn’t want to just talk about better privacy controls, it wanted to have products to show for its efforts, built with the input of advocacy groups. And tomorrow that will happen, with a wide rollout of new features and descriptions of what they mean for users.

As for upcoming location features, Cox said the company would talk about what it’s doing when it has a product ready for users. “A lot of things on Facebook happen in the context of location,” he said. “In the long run, we’re a platform company. We want something where users can have whatever data they’re interacting with.”

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Please see the disclosure about Facebook in my bio.

MySpace is planning a major relaunch this summer, co-presidents Jason Hirschorn and Mike Jones said in an onstage interview at the TechCrunch Disrupt conference today. The release will include a “reimagining” of the site’s front end around the concept of discovery as well as a logo redesign, said Hirschorn, and will be backed up with a marketing campaign to “help solidify this is what we’re going to be.”

“This summer more product will be released than ever in the history of MySpace,” Hirschorn said. In the hallway after the interview, Jones told us he considers the launch “risky” because it involves changing so much of MySpace’s core functionality.

MySpace co-presidents Mike Jones and Jason Hirschorn

Areas of focus will include reorienting to enable discovery of content, trending and targeting products, dashboards for musicians and a better understanding of mobile as the remote control of young people’s lives. MySpace gets a third of its daily audience from mobile, said Jones, adding that such info isn’t included in comScore figures — which indicate dropping traffic for the main MySpace portal.

Hirschorn said that MySpace has put so much effort into keeping its site up that it built an “almost bullet-proof” platform, making the introduction of new features and tweaks with any kind of speed “frustrating.”

The MySpace co-presidents, who took over in February when former MySpace CEO Owen Van Natta was dropped by parent company News Corp, both said they’re happy with their respective roles within News Corp and News Corp’s involvement in their business. Hirschorn noted that News Corp CEO Rupert Murdoch recently called and woke him up at 8 a.m. on a Saturday morning to say the site’s Twitter sync wasn’t working fast enough.

Hirschorn graded the duo’s progress so far a B+ “given the situation.” Jones said that the site has 120 million global unique users, same as when they started — and contrary to measures claiming that usage has dropped.

While Jones noted that the two have made a commitment to MySpace, Hirschorn also said, “I’m an entrepreneur. Am I going to be at MySpace at five and 10 years? Probably not. We deal in the now.” (Though as Om noted on Twitter, Hirschorn’s recent resume is heavy on big companies rather than startups.)

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Twitter said today that it will no longer allow third-party ads to be injected into users’ Twitter timelines. The ban is particularly interesting given it’s almost exactly what the company’s own recently announced advertising platform, Promoted Tweets, does — insert paid and relevant tweets into timelines (as well as search results pages). Fresh off the heels of developer anger and confusion over Twitter’s unexpected efforts to launch and acquire mobile clients last months, the news was carefully laid out in a long blog post by Twitter COO Dick Costolo.

To be clear, Twitter will continue to allow developers to display ads around user timelines. And further, many developers already don’t include ads within streams, knowing that Twitter monetization is a touchy and evolving topic, even if the company had not previously formally clarified its stance. Costolo said he expected today’s API terms of service changes to negatively impact “a few” companies. One seeming target: Ad.ly, which bills itself as “an in-stream advertising platform that matches top-tier Twitter publishers with top-tier brands.”

Costolo explained in the blog post that Twitter’s decision hinges on the concept of near-term vs. long-term monetization opportunities (he used some variation of those terms at least nine times). Costolo said Twitter wants to protect user value and the health of its platform, while “Third party ad networks may be optimized for near-term monetization at the expense of innovating or creating the best user experience.”

Twitter’s Promoted Tweets, meanwhile, are displayed “in a manner that preserves the integrity and relevance of the timeline,” Costolo said.

Twitter shares half of the revenue collected for Promoted Tweets with developers who display them. Costolo justified that share by saying Twitter pays for maintaining its network, fighting spam, scaling the service, supporting users and paying its staff of 200 (and growing). He said there continue to be opportunities to build on top of Twitter, including “third-party monetization engines,” as well as metadata around tweets, vertical clients, and analytics.

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Asking potential customers to buy a mobile app instead of giving them a free one is a huge mistake, said investors on a panel at Google I/O about the freemium business model, where companies give their product away for free and charge for premium features and services.

While investor Jeff Clavier said $4.99 has become the standard premium app price, he recommended against charging in favor of recurring revenue.

Subscription models, in-app upgrades and virtual goods are a much better idea than an upfront fee, said the panelists. Charging for mobile apps “sucks,” said Brad Feld of the Foundry Group. “You never want a customer to be a single-instance experience.” That’s a surprising statement, given the popularity of paid mobile apps, and the propensity of freemium businesses to offer a paid mobile app and a free “lite” version. But Jeff Clavier of SoftTech VC agreed. “Now that you have the ability to charge in-app you really want to do your math,” Clavier said. “Recurring revenue will make you way more than $4.99.”

Some of the other strong and quotable advice from the VCs and angels on the panel:

Know why you’re going freemium: There are three main reasons to offer a version of your paid product for free, said Dave McClure of the Founders Fund. First, giving a new user time to learn what your product is; second, taking advantage of viral distribution; and third, improving the value of your product for users via the network benefit of having more people using it. Know which reason you’re choosing and design around it.

Don’t forget the business model: “Put your business model into beta at the same time you put your product into beta,” said Joe Kraus of Google Ventures.

Pick big markets: The vast majority of customers for any freemium business will choose the free option. For just about everything except antivirus apps, “It’s about a 2 percent asymptote on conversion for most apps from free to premium,” said Kraus. Don Dodge of Google said he’d surveyed 25 freemium companies and found the average was between 3 and 5 percent of users converting to paid, depending on the price point. The lesson? “You want these markets to be really big,” said Matt Holleran of Emergence Capital. That may mean that the enterprise market doesn’t make sense — though you may be able to successfully piggyback onto Google Apps, Holleran said.

Making some customers pay will cap your growth: Feld spoke of his experience with the RSS company FeedBurner, which had 100,000 publishers at the time it was bought by Google. Of those, just 2,000 paid $5 per month for premium features. But the real business was advertising within feeds. After Google bought the company, it extended the premium version to everyone for free. The lesson, said Feld: “The freemium model may actually get in your way relative to the indirect opportunity.”

Making some customers pay will divide your company: The real danger in a freemium model, said Kraus, is it introduces a “cultural split” within the company between what to put in the paid version and what to put in the free one. But McClure disagreed, saying great businesses are not a zero-sum game. Let the customer advocates clash with the people trying to keep the lights on and see what happens, he said.

Don’t trust yourself; trust the numbers: “Your instinct about what a customer will pay for is likely wrong,” said Feld. McClure recommended that any would-be freemium entrepreneur read the book “Predictably Irrational” to learn about people’s non-intuitive buying preferences. The panelists agreed heartily that startups should collect and analyze analytics before, during and after a product is launched.

Pricing is hard: But here are some tips: Kraus, who founded and ran online document editor JotSpot before it was acquired by Google, said to look at consumer behavior around cell phone plans, where they tend to pay one tier higher than what they use. Over the course of a year, that’s more expensive than just incurring a couple overage charges. “People are not optimizing for lowest price, they optimize for least surprise.” Kraus also argued, “It’s much easier to raise prices than to lower prices. The people who got the earlier price feel like they got a good deal. If you lower they’re p***ed off.”

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Google’s developer conference today in San Francisco is offering a range of announcements across the company’s products. Here’s your quick guide to the news, which we’ll be updating Wednesday and Thursday. The freshest news is at the top:

Two more API additions: The Google Feed API now includes push updates, as well as a bunch of new open source web fonts and a font API.

Google Buzz Fills Out APIs: Google Buzz launched an API that will allow developers to access user feeds, search updates, post updates and more. It’s already been integrated by Seesmic, Socialwok and other partners.

Google Latitude Gets an API: Google is allowing developers to build on its mobile location service — with the very explicit permission of users. The team has some cool app and service ideas here.

PayPal for Android: PayPal is offering developers the option to use its Mobile Payments Library to enable purchases in their Android apps. It already does this for the iPhone.

VMware CEO Paul Maritz

Google App Engine For Business and VMware Love: App Engine gets enterprise level support, and later this year will have a SQL database so Google can entice corporate customers to build their in-house applications on App Engine for Business as opposed to on Microsoft Azure or other platforms as a service. It also has optimized App Engine to work with VMware’s Spring Source Java framework. Apps built in the Spring framework will now run on App Engine, VMforce, Amazon’s Web Services and other clouds that support Java.

App Store for the Web: Google is putting together a directory of web apps called Chrome Web Store, though no launch date was specified. The apps will be mostly HTML 5 but will include Flash as well. App makers like TweetDeck have made HTML 5 versions that access APIs for notifications and geo-tagging in the browser, acting much like native clients. Google is working with Unity Technologies on Native Client to help transfer rich immersive 3D games in the browser.

Adobe CTO Kevin Lynch

Open Video: Google released WebM, an open media format for the web-based on VP8, the codec it acquired along with On2. NewTeeVee had scooped this news more than a month ago, and has the full story today. Mozilla and Opera are on board to support the new format, and YouTube is converting its entire catalog. Adobe’s Kevin Lynch said VP8 will be included in Flash. Also on the video front, Clicker demoed a living room-ready version of its online TV guide, built with HTML 5.

Wave for Everybody: The collaboration tool Google Wave, which was introduced at last year’s I/O, is now part of Google Labs and doesn’t require an invite. “If you tried Google Wave out a while ago, and found it not quite ready for real use: now is a good time to come back for a second try,” product manager Stephanie Hannon wrote in a blog post. Wave is also being added to Google Apps.

Google engineering director David Glazer

Google Contextual Gadgets: Third parties can now build dynamic widgets into Gmail for businesses using Google Apps. Launch partners include Gist (see our WebWorkerDaily writeup), Kwaga (imports your correspondents’ social network profiles) and AwayFind (sends push notifications/alerts for important messages). Plus, Xobni announced developer tools to help any contextual gadget developed for Gmail work in Outlook.

Facebook and Zynga, the social network and its most popular game developer, have settled some of their differences and agreed to work together for the next five years, they announced in a joint press release today. The two companies realized they need each other, even if their objectives are not always aligned.

As part of the deal, Zynga promised to expand its use of Facebook credits to more of its titles “in the coming months.” Facebook will maintain its standard 30 percent revenue cut for Facebook credits on all Zynga games, which was a core negotiating point, a Facebook spokesperson confirmed to GigaOM. But of course there are other, non-disclosed terms of the deal that will keep Zynga on board and happy with the Facebook platform.

By way of background, though Facebook and Zynga have had a mutually beneficial co-dependent relationship for the last couple years, it’s gotten ugly lately. Facebook wants to push forward with its own standardized currency — Facebook credits — within applications on its platform. It sprung this on app developers at a particularly bad time, just after reducing functionality for them to notify their users, resulting in significant active usage drops. And worse, Facebook is taking a 30 percent cut of all credits, just like Apple does on its iPhone platform, but without justifying such a large share by adding new functionality or marketing beyond what it’s long given away for free. App developers were particularly concerned that Facebook would, as it fully rolls out the credits program, require them to use it exclusively and disallow cheaper options like PayPal.

So Zynga, which built its business on the social networking site, freaked out and made a stink about building its own game network and said it may even leave Facebook altogether.

Zynga would lose virtually its whole business and its relationships with its users if it left Facebook, so that was hardly an option. What was at stake for Facebook was different. Perhaps the company could have stood to lose the Zynga advertising revenue and user engagement, and it might have been nice to live without Zynga’s particularly aggressive efforts to recruit users and their friends to its games. However, other developers were siding with Zynga because they agreed the credits deal was unfair. If Facebook had cut off its biggest game maker, it would have alienated everyone else, too — even the competitors who stood to gain the most, in the short term, from Zynga’s absence.

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SimpleGeo, the impeccably timed geo-location infrastructure startup, has raised a $8.14 million Series A round from Redpoint Ventures, First Round Capital, Lowercase Capital, Ravi Narasimhan and Foundry Group after raising a $1.5 million seed round last November. And at only a year old, it’s remarkable how quickly the Boulder, Colo-based company has been able to capitalize on the excitement around geo-location technology and be recognized as a thought leader in the space.

SimpleGeo founders Matt Galligan and Joe Stump

For some rumor mill watchers, it’s interesting to note that Redpoint is making the big bet on SimpleGeo (though the venture firm was also in the company’s seed round) and Accel Partners just led a big round for Booyah, the maker of MyTown. Both firms had reportedly been in talks to put a major investment into Foursquare. SimpleGeo and Booyah aren’t necessarily direct Foursquare competitors, but it’s clear both VC firms wanted to have a big location investment to put them on the map.

What SimpleGeo does is provide location data from its API, as sort of an instant geo-juice for your app. So if a service acquires information about where one of its users is (usually through their phone), SimpleGeo will relay what’s nearby that latitude and longitude. The company charges customers between $400 and $10,000 per month, commensurate with the number of API calls.

SimpleGeo also announced a number of additions to its team, including many from Digg, where co-founder Joe Stump formerly worked. One notable hire is Jeffrey Kalmikoff, who was until recently at Digg and before that was chief creative officer for Threadless, the innovative user-generated T-shirt shop. He will be VP of product for SimpleGeo.

SimpleGeo competitor Mixer Labs (aka GeoAPI) was bought by Twitter last year and its founders now lead Twitter’s location efforts.

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Were you thinking to yourself, “What I really need is another way to share what I’ve bought with my friends?” You’re not alone! At least I hope you’re not alone, given a useful social web service requires a healthy network of people to support it. And now we have yet another one: ShopSocially.

To be fair, ShopSocially has the unfortunate timing of launching shortly after two similar services, Blippy and Swipely. The way ShopSocially differentiates is that it is not automatic. Users don’t import their credit card and merchant accounts to share purchases wholesale or item by item. Instead, they manually enter new products they’ve bought (ShopSocially then locates the product info and a photo, and includes a link to where to buy it so as to collect affiliate revenue-sharing).

The idea is to be more casual and private, encouraging conversations on the site about what to buy and why. Users can share their questions to Facebook and comment threads there get neatly imported back. And of course, there are badges and rewards of being crowned a “shopping god” (aka a Foursquare-type mayor) to encourage participation.

One nice thing that ShopSocially does is invite users to “shout” to one another to ask for advice about buying products before they ever make a purchase. So you could query your friends, as ShopSocially CEO Jai Rawat did, as to where or not you should buy the new Flip camera to capture videos of your kids on the go.

Six-month-old ShopSocially is self-funded and has 10 employees in Sunnyvale, Calif. and Pune, India. It opens for public beta testing today.

Hotmail, the leading web email provider, has coasted along for years with barely a feature update. But Microsoft is finally planning a major release for later this summer and on Monday provided reporters with a preview. The modernized Hotmail will include new features include better email filtering, rich media viewing, and document editing.

First of all, Microsoft is bringing Hotmail up to speed with the competition — namely, Google’s Gmail — and offering increased storage, spam detection, conversation threading (but not by default), integrated chat, and a better mobile experience on platforms such as BlackBerry and Nokia.

The new Hotmail has no notable social features, unless you count photo-sharing. That’s a pretty strange omission. Yahoo Mail, which acquired Xoopit and has integrated a social news feed into the inbox, is far ahead in this department. And Google’s recent foray into innovation around email was Buzz, which after privacy issues at launch still hasn’t made itself that useful. Meanwhile, Xobni provides great context and social information around Outlook, and up-and-comer Etacts does similar things around Gmail (see our story from a couple days ago on Etacts’ first round of funding).

I’m of the thought that the next big thing in email is to make the inbox an app platform, where we can interact dynamically with our messages without opening another window. The new Hotmail has some inklings of this — for instance, through an “Active View” feature a USPS tracking code turns into a widget with delivery information displayed in the body of a message. Hotmail will also offer support for viewing and basic editing of Word, Excel and PowerPoint documents (though somewhat oddly, this functionality does not overlap with the recent launch of online document editing site Docs.com in partnership with Facebook, which came from a separate team).

Here are some of Microsoft’s more interesting and unique feature additions to Hotmail:

• rich slideshow tools for photos attached to messages and links to albums on Flickr and SmugMug

• embedded videos from YouTube, Hulu and Justin.tv

• a Bing sidebar to easily add photos, maps and info such as movie times from the web. (This seems like it could be useful but is also totally weird — the demo example was to include clip art from the web in an email… is that really necessary?)

• a “Sweep” tool blocks newsletters by deleting all messages from that sender and blocking all future messages

• click on any name to view all from sender (one of my most-wanted Gmail tweaks, personally)

• Exchange ActiveSync for push email on mobile

The one implementation that seems a bit awkward for me is photo-sharing. While nice slideshow tools and increased attachment limits sound nice, the way this works in the new Hotmail is not something I’d use. The limit for total size of photos in a single message is now an astonishing 10 gigabytes. How does Microsoft go so high? It doesn’t actually transfer the pictures. Rather, it hosts them in the cloud on SkyDrive.

Here’s how it works: Recipients click through on the URL for the photos (even if they’re not on Hotmail). They must have Silverlight installed to view photos online; if not, they can download the attachments directly. The only people who get access to the picture URL are the recipients of the email. Invited users can tag people in the photos and add their own to the album if they have a Windows Live ID. Then, SkyDrive deletes the album three months after you post it (you’re allowed to extend this period indefinitely if you choose to).

Microsoft says this makes sense because many people email each other pictures, and most recipients only view them soon after they’re sent. In today’s Hotmail, 95 percent of storage is attachments, and 55 percent of attachments are photos. But personally I’d rather keep that nearing unlimited storage in my inbox, where attachments live for as long as I want them to. If I want to put pictures in the cloud, I’ll put them on Facebook or Flickr, where they can live within a connected context. But maybe that’s just me. If they removed the default three-month expiration I’d probably have less of an issue.

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In an odd role reversal, MySpace is now declaring itself a bastion of social networking privacy, at least in comparison to Facebook. The company will default many users’ settings to “friends only” and is pre-announcing features that will allow users to choose between three options: public, friends only, or public to anyone 18 or over.

Part of MySpace’s current privacy settings page

This is ironic. Back in ancient history (about five years ago), MySpace became dominant as a dating and entertainment site on the force of open profiles and membership. (In many ways, the site was the predecessor to Twitter, giving fans the ability to “friend” celebrities and get updates on their lives.) Meanwhile, Facebook was much more private and personal, initially closed to everyone but validated students. Since then, each time Facebook has opened up further it has offered additional tools to help users keep their participation private from people like coworkers, non-friends and parental units.

But all those Facebook privacy settings have piled up. Plus, Facebook’s own interests have changed, as it realized the greater opportunity to extend beyond the boundaries of personal communication and just one web site. And it’s introduced new features that have accidentally exposed private user information. Now the company finds itself in a massive privacy backlash.

So MySpace is trying to nudge its way back into the spotlight by declaring its dedication to user privacy. And more than that, simple user privacy. Co-president Mike Jones wrote in a blog post today,

We want our users to know we are planning the launch of a simplified privacy setting for our user profiles. While we’ve had these plans in the works for some time, given the recent outcry over privacy concerns in the media, we felt it was important to unveil those plans to our users now. We believe users want a simpler way to control their privacy. That’s why, in the coming weeks, MySpace will continue to simplify its privacy settings to create a simpler, more intuitive approach that gives users greater control over their information. Setting options will include public, friends only, or public to anyone 18 or over. In making this change, MySpace will default the setting to “friends only” for any user who previously had any granular page setting to “friends only.” Users can change this option with one click if they choose.

To be sure, MySpace has always offered privacy settings (my own profile has been on lock-down for years after some of the skeezy stuff that went on in the early days). This privacy move is just a play for attention — the blogged-about features don’t even have a proposed launch date.

But honestly, privacy is not simple anymore. Not that privacy was ever that simple in the offline world! The difference is now, there’s a preserved recording of our every last secret shared, off-color remark, and embarrassing photo. Kevin Kelleher wrote for GigaOM this weekend “For most people, 50 different privacy settings is 49 too many” in regard to Facebook. But for me, that’s too simplistic — and it’s the same trap MySpace is falling into.

Privacy settings are complicated because privacy is complicated. Ask yourself, which people do you want to allow to see a picture that another person has posted that includes your face. The question is hard to express in words, let alone pre-set controls — but it’s a conundrum that happens millions of times per day on Facebook. Same goes for MySpace, even if is past its day in the sun.

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Please see the disclosure about Facebook in my bio.

Booyah, which makes the location-based mobile gaming app MyTown, has raised $20 million in a round led by Accel Partners and including previous investors Kleiner Perkins and DAG Ventures. The company also added Accel’s Jim Breyer, well-known for being a Facebook and Wal-Mart board member, to its own board. The Booyah funding comes in the context of a series of progressively richer funding deals and hypothetical deals for other location-based startups such as Loopt, Gowalla and Foursquare.

MyTown, which is to date only available on the iPhone and iPod Touch in the U.S., has 2.1 million users. The Monopoly-like game has gained acclaim for its quick growth as compared to Foursquare and Gowalla. While $29.5 million in total funding might sound crazy for an iPhone app, Booyah carries a lot of cred because of its management’s background designing games for Blizzard Entertainment. The company brags that MyTown users already spend 70 minutes per day with the app.

Booyah CEO Keith Lee said his strategy is to go “beyond the check-in” — meaning the now-standardized activity of users actively registering their current location at a venue by using the GPS on their phone. “I think people are fighting in this red ocean for check-ins,” he said. “You have Facebook coming in — that’s gg right there.” (gg is gamer speak for “good game,” aka game over.)

At first the MyTown app wasn’t particularly strict about location fidelity, allowing users to check in at venues they were nowhere near (which might be fun and addictive, but doesn’t carry the same weight as users telling their friends they are actually at a certain bar by checking in on competing services). Booyah has since ratcheted down check-in fidelity and Lee said his team will soon try to nail down the relationship between a customer and a business even further. Lee said he expects to use indicators like UPC and QR codes, RFID tags, and the Open Graph from Facebook to authenticate that a user is actually in a location and/or has performed a certain activity.

Generally speaking, the problem with making a social web product more strict and tied to real life is that it’s hard for new users to get engaged when they don’t know anybody on the service. Lee said that his team’s special sauce, coming out of working on World of Warcraft, is creating worthwhile experiences for those new users and for ones who only want to play for a few minutes.

Lee said that he expects MyTown to be Booyah’s flagship franchise indefinitely, but to expect other future projects as well as the release of a platform to build location apps upon. (MyTown wasn’t actually the company’s first app; its previous major app, Booyah Society, had much less success.)

MyTown monetizes through virtual goods, location-based advertising, and brand partnerships, though Booyah only recently hired its first salesperson to handle inbound inquiries for the app. The Palo Alto, Calif.-based company has just 24 employees now, and Lee said one of the main ways he’d be spending the new funding is to hire great talent.

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The Enormous Promise of Location

Locations identified within the 10 or 20 meters possible by GPS today are far too inaccurate — we need to know where we are we are right down to the millimeter! That was the gauntlet thrown down by Michael Liebhold, distinguished fellow at the Institute for the Future, speaking at a GigaOM Pro Bunker Session on location at the GigaOM office this week. With millimeter accuracy, augmented reality — digital information overlaid on a real-time view of the world — will actually become possible. “Right now we have all this toy AR,” said Liebhold. “This is useless.”

So how do we get to millimeter accuracy? To find out, we followed up with Liebhold for a video interview. He said the most promising technique is to build model of the world using photographs, some of them geo-coded automatically, and the rest of them mapped using an understanding of where they are by comparing them to other images. So a photograph of vacationers in front of the Golden Gate bridge could be pinpointed in position using the precise angle of the orange arches in the background. Google Goggles is embarking on this very project, building a point cloud reference database using publicly available images like the ones from Flickr, said Liebhold, referencing remarks made by a member of the Goggles team at the recent Where 2.0 conference. (As is Microsoft, with its Photosynth product.)

The Google project is scary, said Liebhold. Scary because of the privacy implications, I asked? No, he said, because if Google wants to do this, it will, and it will be hard to compete. Everyone wanting to use the most accurate location data will have to depend on Google.

Liebhold did mention one promising startup effort in the space: Earthmine out of Berkeley, Calif., is building a set of street-view images captured in 3-D with every pixel geo-coded. (See our interview with them from a couple years back.)

Intrigued as to how soon millimeter accuracy might happen and what it could enable? Here’s the video:

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Report: Mobile Augmented Reality Today and Tomorrow

Image courtesy of Flickr user jmlawlor

Turns out collective buying isn’t the only path down which LivingSocial is following local coupon hotshot Groupon. Less than two weeks after Groupon closed a $135 million Series C round from Digital Sky Technologies and Battery Ventures, LivingSocial has raised a $14 million Series C round led by new investor Lightspeed Venture Partners and including U.S. Venture Partners, Grotech Ventures and Revolution Capital. No, those numbers aren’t really in the same ballpark, but LivingSocial has its eyes on the No. 2 spot in a fast-growing market.

LivingSocial had previously raised a $25 million Series B round in March and a $5 million Series A-1 round in January. But although that may lead you to think CEO Tim O’Shaughnessy had spent every waking minute of 2010 raising money, the company also has a few product announcements today. One, it’s launching neighborhood deals, first in Seattle with three “hyperlocal” offerings per day; and two, it’s adding four new markets — Portland, Ore., Orange County, Calif., Charlotte, N.C. and Philadelphia — for a total of 18 U.S. cities.

“Admittedly it’s an easy business to get into. It’s a hard business to scale, ” said O’Shaughnessy of the many, many collective buying sites — what we like to call the Groupon groupies. O’Shaughnessy said LivingSocial doesn’t launch into a new market without having feet on the ground there to sell to merchants directly. As for Groupon, he said, “They’ve made a great business, have awesome traction, and a lot of money. More power to them.”

For more background on LivingSocial, see the story I wrote about their last funding round in March. Heck, it’s not even out of date!

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