As the No. 3 in the market, the Seattle-based company may be the next candidate, if things remain as frothy as they have been.

“My phone is certainly ringing,” Tobias said in an email yesterday.

Tippr has taken a slightly different approach than either LivingSocial or Groupon. It doesn’t have thousands of employees, for example–only 45, of whom 24 are in sales.

In February, it had launched in Seattle with five subscribers. Today, it’s up to 13 markets and “hundreds of thousands of subscribers.” The growth is not only thanks to their own sites, but also by enabling others to join the group-buying frenzy, as well.

Tippr wants to be a platform, not a brand, so if you haven’t heard of it, it’s possible you never will. Even in Seattle, deals seem sporadic, and most offers are from places within walking distance of Tippr’s Queen Anne neighborhood office.

But, to cast a wider net, Tippr recently signed a partnership with Belo Corp., a television network that leverages Tippr’s platform to power its own local deals site, Yollar.com. It uses its own local sales force to make deals with merchants in markets such as Dallas, San Antonio, Houston, Seattle, St. Louis, Portland and Boise. All these individual sites, powered by their own sales force, creates a magnifying affect that Groupon can only match by adding more sales people.

“Groupon is not like Facebook or eBay, where the winner takes all,” he said. “This is more like search.”

EBay became successful by generating a critical mass of buyers and sellers, and Facebook has staying power because once you define your social network, Tobias posits, you don’t want to have to build it again.

“With Groupon there’s nothing locking you in,” he said. “You haven’t invested anything, and the merchants don’t care either.”

Tobias talks tough–despite the apparent lack of interest from Google or Amazon–because he believes he has the IP to back it up. In November 2009, he acquired the patent portfolio of defunct Mercata, a Paul Allen-backed group-buying venture from Web 1.0.

He traded stock in Tippr’s parent company Kashless for the patents, which include more than half a dozen granted patents covering areas like price optimization, demand curve modeling and buyer-seller interaction models. Today, Tippr is announcing a strategy around these patents. A spokesperson said its new “patent licensing program for group-buying” will charge anyone, from white label partners to competitors (theoretically, Groupon), a fee to license them.

Tobias is also bullish, because in his last venture he was attempting something much larger. As CEO of Imperium Renewables, he raised around $500 million in capital to produce biodiesel on a mass scale, which he admits is not enough “when taking on Exxon.”

But taking on Groupon, which may have annual revenues of up to $500 million? To him, that’s doable.

According to sources close to the situation, well-known Silicon Valley power player Peter Currie is joining the board of directors of Twitter.

It’s an interesting choice to bring the well-regarded moneyman to the microblogging start-up, and could indicate an intent to push to an IPO eventually.

As first reported by NetworkEffect’s Liz Gannes earlier this week, Twitter is now considering funding offers from big venture funds, specifically Russia’s DST Global and Silicon Valley’s Kleiner Perkins, as well as fielding incoming acquisition interest from Google and Facebook.

Currie should know about this kind of noisy swirl around a hot start-up.

Back in the heyday of Web 1.0, as the CFO of Netscape Communications, he led the iconic browser software company into history, as the first great Internet rocket ship, when it went public on August 9, 1995.

While the Netscape experience ended in tears, Currie’s career has not, and he has become a kind of go-to elder statesman in the Web 2.0 era.

A year ago, for example, he joined Facebook as its temporary CFO.

That move came after the social networking site, in a bit of turmoil, parted ways with its then CFO, Gideon Yu, following mutual disagreements.

Indeed, Currie plays the calm, collected wise man well.

Unusually tall, aggressively avuncular and laid-back, he loves Elvis and enjoys pranking reporters like BoomTown.

(Case in point: Back in the day, he spread the rumor around Silicon Valley that I was short due to a medical condition.)

Now the president of Currie Capital, a private investment firm, he had previously worked at General Atlantic in private equity.

After Netscape, he was a partner and co-founder of the Barksdale Group, an early-stage (and ill-fated) venture capital firm.

Before Netscape, he was CFO of McCaw Cellular Communications and also worked at Morgan Stanley.

Currie is also board-happy, serving as a director of a variety of tech firms, private and public, which have had varying degrees of success.

They have included CNET, Critical Path, Clearwire, Safeco, Ofoto, Tellme Networks and Zantaz, as well as Sun Microsystems.

He has an MBA from Stanford University and went to Williams College.

In other words, just the kind of pedigree needed to give some additional burnish to the Twitter board, which now includes Fred Wilson of Union Square Ventures, Spark Capital’s Bijan Sabet, Benchmark Capital’s Peter Fenton, co-founder and former CEO Evan Williams, co-founder Jack Dorsey and CEO Dick Costolo.

Apparently, it’s time to toss another dude in there!

Great fun to listen to for Apple watchers. But not that meaningful, really–mostly positioning and spin. There was at least one important nugget, though: Apple has a specific shopping list, with some very big-ticket items on it.

Jobs wouldn’t lay those out, of course. But when asked if he planned on spending any of Apple’s $51 billion (!) in cash via a dividend or stock buyback, he explained that he had something else in mind. From my notes, a combination of direct quotes and paraphrase:

“We strongly believe that one or more very strategic opportunities may come along that we’re in unique opportunity to take advantage of because of our cash,” and we want to keep our powder dry “because we feel that there are one or more” opportunities in the future.

M&A guys, start your engines!

The “what will Apple do with all its cash” speculation story is a time-honored tradition–I seem to remember writing one four or five years ago, when Apple had $6 billion or so lying around, and discussing whether it made sense for Jobs to buy a music company like Universal.

But I don’t remember Jobs every signaling his desire to go shopping quite as openly as this before (feel free to correct me in comments if I have this one wrong). Two caveats:

• Jobs is famous for saying one thing and doing…something else. So don’t get too riled up about this.
• Just because Jobs is talking about spending money on “opportunities” doesn’t mean he’s talking about buying a company. He could be talking about big, hairy capital expenditures, like the billion-dollar server farm Apple is finishing up in North Carolina.

Still. It’s hard not to read or hear that quote and not think that he’s thinking about some very big buys. Like what?

A lot of folks will assume that Jobs is talking about buying a big content producer. Music doesn’t make any sense, because there’s little value left in that business. But if Jobs wants to make headway in the TV business, perhaps it makes sense for him to snag a big broadcaster or programmer to give him the leverage he needs with the Comcasts, Viacoms and Time Warners of the world.

Or you could make the same argument for other content makers, like game studios. The biggest one, Electronic Arts, has a market cap of a mere $5.21 billion. Jobs could give ERTS shareholders a hefty premium and still have plenty of walking-around money.

Or perhaps it makes zero sense for Apple to be in the content business, because it’s done just fine not being in the content business to date.

So then what?

Feel free to throw your own guesses in, but I’ll kick off with my own: It’s a company that has yet to compete with or brush up against Apple in any significant way. And it’s one that Apple seems unlikely to be able to move aside, even if it wanted to. And it’s one that’s already competing directly with Google, which has to make Jobs like it even more.

And, if you believe this L.A. Times report, Jobs is already strolling around Palo Alto with its CEO: What do you think of Apple buying Facebook? Discuss….

Earlier

Apple investors who got their first look at the company’s earnings numbers don’t like them–AAPL is trading down seven percent after hours. Let’s see if Apple executives can soothe their concerns during the earnings call.

You can listen in for yourself via this link, or follow along in my liveblog below:

Live Blog

Apple or Apple’s IR company trying some very, very mellow string and piano stuff while we wait.

CFO Peter Oppenheimer kicks off. “Outstanding results” for September quarter. Highest quarterly revenue, earnings.

Mac products and services: 3.9 mm Macs. Record quarter. 27% y/y growth. Double market growth for Q.

IMac, Macbook, Macbook Pro all good. Asia/Pacific performing best.

IPods: 9.1 million.

ITunes revenue more than $1 billion.

IPhone. “Extremely pleased” with 14.4 million unit sales; basically doubled y/y.

$8.6 billion in sales value of iPhones alone.

Heaping praise on iPhone 4 (justified) and stressing iPhone’s move into corporate market, rattling off blue-chip customers.

IPad. “Thrilled” with momentum. “Great enthusiasm” from customers.

65% of Fortune 100 deploying or piloting iPad. Lists some of them.

125 million iOS device sales last month.

200,000 registered iOS developers.

“Very happy” with results of iAd so far.

On to Apple stores. More records here.

Expects to open 40-50 stores next year, 50% of them outside U.S.

IPhone sales mix “better than expected”–boosted overall margin.

$51 billion cash hoard. [Deep, longing sigh from everyone in media, tech business.]

For the year: 5x revenue and 10x earnings compared with five years ago.

“Very enthusiastic” about lineup, “extremely confident” in new product pipeline.

Rare appearance from Steve Jobs!

Had to drop by for first $20 billion quarter.

“We’ve now passed RIM, and I don’t see them catching up to us in the foreseeable future.”

They have to move into software/platform development, and I don’t think they can.

So what about Google?

Apple is activating 275,000 iOS devices per day on average over the past 30 days; peaked at 300k iOS devices some days. 300,000 apps in app store.

Unfortunately, there is no solid data on how many Android handsets sold each quarter.

Google loves to characterize Android as open, Apple as closed. “We find this a bit disingenuous.”

Windows is “open.” But Android is “very fragmented.” OEMs like Motorola install own stuff to make their phones stand out. We don’t do that.

Shout out to “Twitterdeck” ( I think he means Tweetdeck) and their challenges running 100 versions of Android client. “Compare this to iPhone, where there are two versions of the software…to test against.”

Meanwhile, at least four app stores on Android. “This is going to be a mess for both users and developers.”

Apple’s app store has 3x apps compared with Google marketplace.

“Even if Google were right, and the real issue was closed vs. open, it’s important to remember that open systems don’t always win.”

For instance: Microsoft’s [miserable] “PlaysForSure” strategy, RIP.

Google’s “open” argument is a “smokescreen.” Real issue is what’s best for customer–”fragmented vs. integrated.”

Integrated is a huge advantage for us, because it’s better for customers, and better for developers. “We are very committed to the integrated approach no matter how many times Google tries to characterize it as closed.”

Now! On to our tablet competitors:

First of all, only a few credible competitors.

Second, most of them are pushing 7.5″ screen. That means they are just at 45% size of our 10″ screen. “You heard that right….This size isn’t sufficient to create great tablet apps.”

Extolling features of iPad size vs. teeny tiny tablet competitors: They’re “tweeners”–too small to compete with iPad, too big to compete with smartphones.

IPad has 35,000 apps. New crop of tablets will have “near zero.”

Competitors having a hard time coming close to iPad pricing, even with their puny screens. We make our own everything, and this results in an “incredible product, at a great price.” Our competitors will “likely offer less, for more.” They’ll be “DOA. Dead on arrival.”

Questions and Answers

Supply constraints on iPad?

COO Tim Cook: We’ve got a handle on it. And note that we’re expanding distribution in the U.S. and internationally, with more countries to come.

Question about margins I didn’t quite catch.

Oppenheimer: Sold more iPhones than planned, and commodity prices came down, so that helped.

Q for Steve. Please talk about “iPad opportunity.” Size of business, etc., two years or more down the road?

Jobs: “The iPad is clearly going to affect notebook computers. The iPad proves it’s not a question of if, it’s a question of when.” Already seeing “tremendous” interest from education and “much to my surprise, from business.”

“The more time that passes, the more I am convinced that we’ve got a tiger by the tail here.” We’ve trained tens of millions of people on this OS via the iPhone. “I see it as really general purpose, and I see it as very big.”

Could it be the second biggest business after the iPhone?

“I try not to predict, I try to report.” We’re selling more iPads than Macs.

What about Flash? Any update?

“Flash memory? We love flash memory” [hohoho]

A question on iPhone demand, which I missed.

Q: Steve, “You are the tablet market.” Do you see tablet competitors cutting into your market in the same way you cut into RIM’s market? Won’t that fragment the market?

“I have a hard time imagining what those strategies…are.” Pricing won’t work. “Flash hasn’t presented any problem at all; as you know, most video on the Web is now presented in HTML5.” The iTunes store is dominant and “we’re not done” working on stuff for the future.

Q: Smartphones–”Do you see that as a zero-sum game?”

Jobs: As you know, most phones in the world aren’t smartphones. They’ll convert over time, so there will be room for multiple competitors, but “eventually it will turn into a zero-sum game, or close to that.”

Q: For Oppenheimer: Another margins question.

A: We do see a small sequential decline. Higher-than-expected mix of new iPods and new iPads. We’ve been very aggressive on pricing there, and that’s what’s pushing down margins.

Q: Steve, how’s your Apple TV “hobby” coming? And what’s up with streaming media?

Jobs: We don’t talk about unannounced products, but I’m happy to tell you what we know about Apple TV. We have moved to streaming. It’s all streaming. Everything is rented, and/or soon to be streamed from iPad or iPhone.

So far we’ve sold 250,000 new Apple TVs. “I’m thrilled with that.” And with Airplay set up, “it will give people another big reason to buy it.”

Another margin/guidance question. Seems to be the same one repeated each time, with the same answer.

Q for Steve: Key risks for company?

The goal is to make the best devices in the world. “It’s not to be the biggest. As you know, Nokia’s the biggest… but we don’t aspire to be like them.”

Android is the biggest competitor. Outshipped us in June quarter as we transitioned. We’re waiting to find out what happened in this quarter. “I don’t know how we’ll find out” though.

Our approach is to create products that “just work” and “their approach is very different from that.”

Questions for Steve and Tim: Aspirations for iPhone and iPad. In Mac, you didn’t aspire to high market share; in iPod, it was the opposite–you own that market. In the past, Tim you’ve described iPhone business as closer to the iPod model. Steve, you sort of said something different. Please resolve that difference: Biggest, or best?

Jobs: “Nokia makes $50 handsets. We don’t know how to make a great handset for $50.” We want to make “breakthrough, best products,” and “drive costs down” while making them better through “relentless improvement.”

We have a very low share in the phone market. Single digits. And a very high share in tablets. But we don’t think about it that way.

The reason we won’t make a seven-inch tablet isn’t because of price point, “it’s because we don’t think you can make a great tablet with a seven-inch screen.” And as a software company, we think of software first. Developers don’t want to build for all these different platforms and devices, and on this small screen. “It’s not about cost, it’s about value, when you factor in the software.”

Q: Okay, but if the market moves toward lower-functionality smartphones and “dramatically lower price points,” then you’ll cede share, right?

Jobs: “You’re looking at it wrong.” You’re looking at it as a hardware guy who doesn’t really know about software. You assume that software “can come alive on this product that you’re dreaming of. But it won’t” because developers want to build for better products, with faster processors and better screens.

Q: You have about $50 billion in cash. What are you going to do with that? Why not return it to shareholders?

Jobs: “We strongly believe that one or more very strategic opportunities may come along that we’re in unique opportunity to take advantage of because of our cash” and want to keep our powder dry “because we feel that there are one or more” opportunities in the future.

Missing next question about iPhone and iPad penetration into corporate market.

[Market not sold on Apple's story yet, btw: Stock still down 5.84%.]

Question for Oppenheimer. Guess what? It’s about gross margins. Any change in manufacturing, etc? Any color at all?

Oppenheimer: Don’t provide product-specific gross margins. Always trying to lower costs, though. “We were happy” with gross margins for quarter. Down slightly because of product mix, as I’ve said over and over.

Q: Talk about demand from carriers to pick up iPhone 4.

Cook: The pressure I’m feeling is about supply. That’s the problem. At the country level, we have 166 relationships in 89 countries. In many countries, we went to more than one carrier. Latest one of those is Germany.

IPhone 4 in 85 of 89 countries. Will be in all 89 by end of year.

What happens to margins and subsidy when you go nonexclusive?

We don’t give information out on specific markets, but you can see that our ASPs have stayed above $600.

For Steve: Why do you have advantage in price on iPad, as opposed to PC?

Jobs: We engineer so much of it ourselves. Everything from chip to battery to enclosures. We’ve learned so much. We’ve learned a lot, developed a lot of our own components, where competitors have to go through middlemen. “This is a product we’ve been training for for the last decade.”

Call is over. You can hear the whole thing on a podcast later this evening.

Here are the three data points that the search giant showed off during its earnings call this afternoon. All of them “begin with the letter B,” as product SVP Google Jonathan Rosenberg noted, and all of them come with caveats:

• $2.5 billion: Non-text display ad revenue run rate. That number includes ads from its DoubleClick unit as well as YouTube.
• 2 billion: YouTube monetized views per week.
• $1 billion: Mobile annualized revenue run rate.

All of those seem big–and they are! But they’re also deliberately fuzzy enough that it’s hard to tell exactly what they mean.

For instance: As Henry Blodget notes, those display-ad dollars are gross revenue, which means that Google only keeps a portion of them. And while that two billion YouTube views number is up from a billion a year ago, it’s proportionally the same: A year ago YouTube said it was monetizing a billion views a week while serving up a billion views a day; now the video site says two billion views a week and two billion a day.

Meanwhile Google officials, who routinely announce that YouTube is close to profitability, refused to tell analysts whether YouTube is actually profitable.

No matter! The point of b-as-in-big numbers was to impress Wall Street with Google’s ability to create new revenue streams beyond its core search ads. And the data, along with the company’s impressive Q3 performance, seems to have worked: Shares are up nine percent in after-hours trading.

——————

EARLIER

There’s the beat Wall Street was looking for. Google reports earnings of $7.67 a share and net revenues of $5.48 billion. The consensus was for $6.67 and $5.25 billion. GAAP EPS was $6.72.

Google (GOOG) has been plowing money into capital expenditures and people–it now has 23,300 employees, up from 21,800  months ago, a 6.8 percent increase–but it has been able to keep operating income quite healthy, anyway. Adjusted operating income was $2.93 billion, well above the $2.77 billion consensus.

GOOG is up considerably, now seven percent, in after-hours trading. Robot cars for all!

You can listen to (and watch) Google’s 4:30 pm ET earnings call by clicking on this YouTube link. I’ll add updates from the earnings call occasionally starting here:

As in recent quarters, CEO Eric Schmidt is sitting this one out.

CFO Patrick Pichette starts off. Aha! Teases that “we may have” Schmidt available for the first 30 minutes of Q&A before he gets on a GooglePlane.

300 of those new 1,500 employees came from acquisitions.

Discussion of “long-term” growth–”the next 5 to 10 years.” “Simply put, we’re on this growth agenda at full throttle…investing heavily in people and in product.”

There’s a “war for talent” in our industry, which is “out of synch” with the broader economy. Currently exploring how to attract and retain people. Winners and losers determined by this battle.

Re: Product investment, which you’ll hear about from product SVP Jonathan Rosenberg. He’s going to tell you about some numbers, but don’t expect to hear an update on these–they’re merely “proof points” about Google’s success.

Here’s Rosenberg, teasing new previously unreleased numbers.

Here they come. Starting with search and Google Instant:

Impact has been “very minimal” on revenue and “quite expensive” from a resource perspective.

But! “We launched it because we could.”

As search gets better, ads have to keep pace. Great momentum with AdWords.

New ad formats appear on more than 10 percent of query. Some formats show clickthrough rates as much as 10 percent on some, up 30 percent in others.

Big numbers, “which all begin with the letter B.”

$2.5 billion: Non-text display ad revenue run rate. That includes DoubleClick, YouTube.

2 billion: YouTube monetized views per week

$1 billion: Mobile annualized run rate

Mobile search queries up 5 times in the last few years.

Back to Pichette, to tamp down numbers.

In some cases, there is overlap with numbers. For instance, with AdMob, numbers counted in both display and mobile.

Time for Q&A, Schmidt is now on the line.

Schmidt says query growth is pushing click growth, and so are new ad formats. Ads are more compelling, etc.

Pichette notes that AdX numbers are included in the $2.5B display total.

Q: Please talk about YouTube. Of the two billion monetized views, what percent is that of total views? And are you profitable yet?

Pichette: Re: Profitability, “We have not made any comments on it.” [Except of course when they do, over and over.]

Rosenberg: Note that we’ve said we do two billion views per day–that will give you context.

Sorry, missed a Q.

Schmidt says growth of Android is “well past what I had ever hoped for.”

90,000 apps on Android “and growing very fast.”

Question about “proprietary benefits” of Android.

Schmidt: Android is the “largest single platform play” in mobile today.

We’re growing it by giving software away. How does that help us? Well, for starters, people who use Android search two times more than anyone else. Obvious benefit for us there, and search is more lucrative for us there as well, and that makes Android “hugely profitable.”

And we can add other value-added services to Android, but that’s not the focus right now.

Questions on cost: Cost per employee has declined. Can you continue that? And on mobile, will you stay with the “indirect monetization” Android strategy?

Pichette: Wouldn’t read anything into the cost-per-employee numbers. But we’re continuing to be frugal and generous.

Ad boss Nikesh Arora: We’re excited about the revenue model we have. We have no reason to change the model we have with Android.

Schmidt: And display will become a very big component of mobile.

Q: On display, can you break out YouTube and AdX numbers? And what do you think of competitive Android marketplaces?

Pichette: No breakout of numbers. [Duh.]

Schmidt: Goal of the app store is to make money for developers. Not a revenue goal for Google. More stores are a “win for everybody.”

Question about CPC on mobile devices. Rosenberg: They’re lower than desktop, because there aren’t many practical ways to consumate transaction. But on the iPad, activity looks a little bit more like it does on a PC, because there’s more room to enter credit card numbers, etc.

Q: Please discuss cannibalization between smartphone and PC–are iPad and tablet searches incremental or cannibalization? And can you give us color on international 26 percent growth?

Rosenberg: We don’t see cannibalization. We see mobile as complimentary to desktop. Different use patterns–mobile search is on weekends, during lunchtime, etc.

Arora: Generally, trend positive across the board. U.K. a bit weaker, but some of that is FX. Southern Europe way better than Northern. Asian markets robust.

Q: Competitors make $300 profit per handset sold over the lifetime of a device.You’re approaching this with a different model, but do you think that’s an upper limit on that number?

Schmidt: Our model is that handset makers and manufacturers make a lot of money from the phone, and we make money from advertising. So can’t compare the two, and premature for us to guess what we can do. “It should be highly lucrative” and a “very very strong revenue stream compared to a PC.”

Q: On social search. How do you “capture the signal” without access to the data feeds, as you have with Twitter.

Schmidt: “There are some ways we can do that” now, and we’re working on new ways.

Sorry, stepped out. Back now.

Q: TAC rate seems to be lowest since IPO. Sustainable? Growth has been driven by volume, not price. Sustainable, and/or will pricing increase going forward?

Pichette: MySpace deal is now over. That saved us a bunch of money. And mix of our partners will effect our TAC. That’s about it.

Rosenberg: Can’t answer volume/price question without “being forward-looking.” [Heh]

Q: Microsoft/Facebook deal was exclusive. But do you think you’ll see exclusive data deals? And what about Groupon, etc.? Can you compete there?

A: Value of exclusive data is “swamped” by “vastness” of the Web. So no concern there.

Schmidt: Always a concern that large chunks of data are not accessible to search engines….long pause… up to the content owner to decide how much to expose. We believe the world is better off if more information is searchable. “We fundamentally believe that.”

Rosenberg: Daily deals are very exciting. “A lot of small companies doing a fabulous job there.” We participate a little bit via sitelinks. But no question “that’s a very exciting and hot space.”

Q: When will Google Instant be on the BlackBerry or iPhone? What’s Android activation rate? And why not let advertisers bid directly on mobile inventory?

Rosenberg: Instant availability on other platforms “relatively soon”–probably this fall.

Not updating Android activation numbers.

Q: Given that non-core search is more material, do you think you’ll keep allocating resources with your 70-10-10 model? And when do you anticipate mobile overtaking desktop?

Schmidt: On mobile vs. display: Even if we knew I don’t think we’d talk about it.

On core vs. emergent: We talk about this all the time. Depends. Android is very small, and growing fast, so they get all the resources they need. We end up still at 70-10-10, but that’s not really a formula for us.

Pichette: What really matters the most to us is as Eric says, “When you see a hockey stick, pour gasoline on that fire.”

Q: Big-picture data question: What does Google think about leveraging user data to better target ads (see Facebook, Yahoo, etc.)–particularly with search data and display?

Schmidt: “We have a pretty strong opinion that we’re not going to do very much of it.” We’re intensely serious about privacy.

So “we’re not going to do the kinds of things that we could do with it… without your explicit permission. And in many cases we probably won’t do it forever.”

A question on display, which I’ve missed but will have to return to.

Pichette wraps things up. Today’s data points “are not about giving you information” for coming quarters, but to give you confidence that we’re building long-term businesses.

Call ends.

Mark Mahaney’s cheat sheet will help you decipher the numbers:

While it seems to be a stealth launch, the new online political site for MSNBC.com, created by Hollywood production firm BermanBraun, is now up and running.

Called BLTWY–as in “Beltway,” presumably for the road that rings the nation’s capital–the striking rich-media content site is now live. (You can see it above.)

BLTWY seems to follow along the sweeping horizontal wall and extensive use of larger photos and videos that characterize BermanBraun’s popular Wonderwall celebrity site.

In May, BermanBraun and MSNBC announced the collaboration in a blog post, noting:

“Politicians have now become part of popular culture, and de-facto celebrities, attracting considerable media attention. BermanBraun and the Msnbc Digital Network announced a partnership to create an original destination site which will go beyond policy and polls to explore the celebrity side of politics…It will take you inside the beltway to explore the lives of politicians as celebrities, giving politics the Wonderwall treatment.”

BLTWY is definitely aimed at meshing celebrity and politics and has a lot of interactive elements, such as polls and Facebook Connect.

In fact, the main feature at the moment is a diva depiction of the Supreme Court.

The slick site also appears to be developed in HTML5, rather than using Adobe (ADBE) Flash technology and fits to the entire screen with the homepage remaining in a persistent manner.

BermanBraun has already created several sites for Microsoft (MSFT) and its online properties. Wonderwall debuted in 2009 on its MSN portal, where its women-focused Glo also resides.

The presentation catalyzed a movement. Start-ups everywhere adopted a lean, low-burn, low-investment model. To this day, companies seeking funding at our venture firm, Andreessen Horowitz, proudly proclaim in their pitch decks that they are raising tiny amounts of capital so they can run lean.

On the one hand, it is a fact that capital invested is negatively correlated with returns in the venture capital industry. Pumping too much money into a small start-up is unhealthy for both the company and the investor. On the other hand, Facebook has raised several hundred million dollars and is on track to produce fantastic returns for all of its investors.

So what’s a start-up to do? Much of what has been written and said about lean start-ups makes good sense. However, that advice is often incomplete, and some of the things left unsaid are the least intuitive. In this article, I will articulate some of those things left unsaid in arguing the case for the Fat Start-up.

Here is my central argument. There are only two priorities for a start-up:
Winning the market and not running out of cash. Running lean is not an end. For that matter, neither is running fat. Both are tactics that you use to win the market and not run out of cash before you do so. By making “running lean” an end, you may lose your opportunity to win the market, either because you fail to fund the R&D necessary to find product/market fit or you let a competitor out-execute you in taking the market. Sometimes running fat is the right thing to do.

What the hell do I know?

“Al Pacino couldn’t be no gangsta, DeNiro in ‘Casino’ he no gangsta
Wanna be, wanna see, wan’ get a shovel
dig Tookie up n*&%^!, cause he know gangstas”

–The Game

At this point, some of you are asking yourselves, “What the hell does Ben know? If he were really smart, then he’d know that thin is in.” It turns out that I have some experience in managing a fat start-up through the dot-com implosion of the early 2000s. This chart offers a brief summary of equity market history when I was CEO of Loudcloud and Opsware (click to enlarge):

Note that the Nasdaq index is very highly correlated to the start-up funding environment. During the two years I was CEO of Opsware, the Nasdaq fell 80 percent, far more than it has fallen during the current 2008-10 downturn. So the 2000-02 environment was at least as traumatic as this one for Silicon Valley companies–and arguably much worse.

Here is a brief summary of Loudcloud/Opsware’s fund-raising history during that time:

• September 1999: Loudcloud founded
• November 1999: Loudcloud raises $21 million at a $45 million pre-money valuation (Benchmark Capital is the lead investor)
• January 2000: Loudcloud borrows $45 million from Morgan Stanley (MS)
• June 2000: Loudcloud raises $120M at a $700M pre-money valuation
• March 2001: Loudcloud goes public on Nasdaq, raises $160 million and is valued in the public markets at approximately $480 million. Total funds raised to this point: $346 million.
• August 2002: Loudcloud sells the managed services business to EDS (this was the only actual business we had at the time) for $63.5 million and becomes a software company (and changes its name to Opsware).
• September 2002: Opsware trades for 35 cents per share or approximately a $28 million market cap.
• September 2007: Hewlett-Packard (HPQ) acquires Opsware for $1.6 billion

During this period, Loudcloud/Opsware had over 20 direct competitors. Almost all the competitors from the Loudcloud era went bankrupt, including MFN/SiteSmith, Exodus, LogicTier, Williams Communication, Global Crossing, WorldCom/Digex and Storage Networks. Those that survived got bought with valuations of less than $100 million (e.g., Totality) or still have very low valuations (e.g., Navisite).

How did we do it?

“I had a dream I could buy my way to heaven
When I awoke, I spent that on a necklace”

–Kanye West

So how did we navigate through the great dot-com crash, crush the competition, emerge as the No. 1 company in our space and sell the company to HP for $1.6 billion? Did we “cut spending, cut now, and preserve capital?” Did we make cash preservation our No. 1 priority?

No, we didn’t. To underscore the point, here are Loudcloud’s average monthly cash burn figures for the quarters ending in:

• Apr 2001:  $39 million
• Jul 2001:  $35 million
• Oct 2001:  $29 million
• Jan 2002:  $25 million
• Apr 2002:  $22 million
• Jul 2002:  $19.4 million

As you can see, we were aggressively investing in the business throughout 2001 and 2002. While we did reduce our cash burn, we did not make cash preservation our No. 1 priority. As it was, over the course of the transition from Loudcloud to EDS, we sadly laid off 400 employees and transferred another 150 to EDS. However, we didn’t scrimp and save our way to a $1.6 billion acquisition: Instead, it’s what we chose not to cut that ultimately got us there.

Loudcloud was a Web-hosting business. Today, we’d call it a “cloud services” business, but people weren’t quite ready for the “cloud” in 2001. We supercharged our hosting business with software (called Opsware) that automated our Web-hosting operations. The other cloud services businesses of our day also had software investments. However, as the macroeconomic climate changed, they all “cut deep and cut now.” In the end, they ended up putting their software in maintenance mode and stopped building new features.

As we weighed a decision to make the same deep cuts in our own software R&D efforts (a move advocated by the intelligentsia of the day, as well as nearly every MBA we had working in the company), I faced a hard decision: Cut deep and get to cash flow break-even quickly or continue to invest heavily in software?

In the end, I decided to run fat so that we could continue to invest in the Opsware software. At the end of the day, I realized that much larger companies like IBM (IBM) could hire smart people and train them. But without a lasting technology-based advantage, it would be increasingly hard for us to defeat them and build our customer base despite early wins with Ford (F), Fox Sports, and the U.K. government (to name just three of our early customers).

Running fat meant that I laid off zero software engineers so that we could keep on investing in our technology, find our product/market fit, and build a lasting technological advantage.

Still, we had to reduce costs or we would clearly go bankrupt. With this new view of the world, I decided that rather than divesting our intellectual property, I would divest our business. Now, that may sound logical the way I’ve described it, but consider these facts:

• We were generating $65 million/year from the Web-hosting business.
• We were a publicly traded company with a market capitalization of close to $200 million.
• All of our investors (pubic and private) believed in and invested in the Web-hosting business.
• We had close to 500 employees at the time. Nearly all of them were supporting the Web-hosting business.
• We had no other business. We had software, but we did not have a software product and certainly did not have a software business.

Despite all of this, we sold the Loudcloud hosting business to EDS and became Opsware the software company. It was not clear that this was a good idea at the time. In fact, the market thought it was a terrible idea: Our stock promptly lost 80 percent of its value, putting our market cap at about $28 million. It’s worth pointing out that this was about $40 million less than the cash that we had in the bank.

During the transition, we shrank our payroll from 450 employees to fewer than 100. Even with this massive reduction in expenses, it would take another three quarters to reach cash-flow break-even, a milestone we finally reached in Q2 of 2003.

One could argue–and many did–that we should have cut a lot deeper than we did given that we only had one customer. Although EDS was a very large customer (it generated $20 million/year in revenue), a brand new software company doesn’t need 100 people. We could have taken steps to reach cash-flow break-even immediately (clearly, that might have helped us get above 35 cents per share). In other words, we could have “gone lean” by cutting deep, cutting now, and preserving capital.

But rather than do what seemed obvious, I decided to keep on investing. Here’s why: In an economic boom, cash is great, but not necessarily a meaningful competitive advantage. If every company is well funded, being super-well funded doesn’t help you win. In fact, being super-well funded can actually screw you.

But in a bust (like the one we were in), having a lot of cash can be a huge competitive advantage because you can use that cash to put enormous pressure on your underfunded competitors. And that’s what we did.

We spent aggressively to match our best competitor’s product, feature for feature. And we used our public currency to acquire important adjacent functionality (network, process and storage management) that our competitors did not have and couldn’t acquire because they didn’t have the cash (or the equity).

In doing so, we were able to beat a really high-quality start-up (Bladelogic) that did not have the massive technical and cultural baggage that came from exiting the managed services business. Bladelogic was eventually sold to BMC (BMC) for $800 million. But I’m firmly convinced that had we not spent the money, Bladelogic would have emerged as the No. 1 company in the space and gotten the $1.6 billion exit instead of Opsware.

In the end, by continuing to invest aggressively in our technological advantage despite a hellacious funding environment, we were able to turn a doomed business into a winning one.

That is the very short version of how we won the market during the great tech recession of the early 2000s.

So did we learn?

“Hegel was right when he said that we learn from history that man can never learn anything from history.”

–George Bernard Shaw (1856-1950)

Every start-up is in a furious race against time. The start-up must find the product-market fit that leads to a great business and substantially take the market before running out of cash. As a result, the top two priorities are always to:

1. Find the product that 1,000 enterprise or 50 million consumers want to buy and grab those customers before your competitors do.
2. Raise enough cash and spend it intelligently so that you don’t go broke along the way.

Clearly, you can’t succeed if you don’t achieve both priority No. 1 and priority No. 2. So why is taking the market more important than not running out of cash? Because the only thing worse for an entrepreneur than start-up hell (bankruptcy) is start-up purgatory.

What is start-up purgatory, you ask? Start-up purgatory occurs when you don’t go bankrupt, but you fail to build the No. 1 product in the space. You have enough money with your conservative burn rate to last for many years. You may even be cash-flow positive. However, you have zero chance of becoming a high-growth company. You have zero chance of being anything but a very small technology business (see Navisite). From the entrepreneur’s point of view, this can be worse than start-up hell since you are stuck with the small company.

You recruited all the employees, you raised all the money and you made all the promises. You either see it through or leave–without your good reputation. No one wants to work for an entrepreneur who quits his or her own company. This is start-up purgatory, where you work just as hard, reap none of the rewards, and watch all your best people leave you. It sucks to be you.

The Bottom Line

Spending a little or spending a lot is a means, not an end. Choose the right strategy to win the market or you may end up going straight to purgatory.

As you listen to the virtues of the lean start-up–lightweight sales, light engineering, and so on–keep the following in mind:

• If you are a high-tech start-up, your value is in your intellectual property. Don’t stare at your spreadsheets so long that you get confused about that.
• You cannot save your way to winning the market.
• The best companies can raise money even in this market. If you are one of those, you should consider raising enough to wipe out your competition.

Thin is in, but sometimes you gotta eat.

Ben Horowitz is co-founder and general partner of Andreessen Horowitz. He co-founded Loudcloud, later renamed Opsware Inc., in 1999 and served as CEO of the company before it was acquired in 2007 by Hewlett-Packard. He was most recently vice president and general manager of Hewlett-Packard’s Business Technology Organization Unit.

Last night, I jetted east to Washington, D.C., for an unusual confluence of events: The 25th anniversary of the .com Internet domain name and the Federal Communications Commission’s release of the much anticipated National Broadband Plan.

Both are set for tomorrow in the nation’s capital and both concern the impact of the Web on the United States in the past and the future.

Incredibly, .com was almost .cor, for corporate.

And the first .com address handed out–Symbolics.com–belonged to a now-defunct Massachusetts computer company.

(It signed up via the domain registrar, Network Solutions, which was bought by VeriSign in 2000. The Symbolics.com domain was sold in 2009 to Missouri-based XF.com, which “operates commercial real estate and premium domain properties.”)

In honor of the anniversary, VeriSign (VRSN), which administers the .com registry, is hosting a policy forum in D.C. It includes a keynote address by former President Bill Clinton, as well as some panels.

I will be moderating the one in the afternoon titled “The Next Generation.” The panelists, looking to the future, include, among others: Arianna Huffington of the Huffington Post; Aneesh Chopra, Federal CTO of the U.S.; and Fred Wilson of Union Square Ventures.

There will be another gala event to honor Internet innovators in San Francisco in late May.

While the growth of .com was slow until the browser became popularized–numbering under 15,000 in 1992–there are now close to 85 million .com domains. This commercial one is clearly the most important of the designations, both financially and perceptually.

Still, despite how much impact the Internet has had globally, spurred mostly by innovation in the U.S., this country still remains woefully behind in high-speed access to the Web.

While it is easy–and fun–to blame the greedy telcos and cable companies (and they do deserve some of the blame), the lack of a federal imperative has been the most appalling explanation.

It is as if the federal government had decided dirt roads were preferable to the highway system or tin cans and string were better than universal telephone access.

Will making broadband access easy, fast and cheap for most people in the U.S. be the end result of the National Broadband Plan, to be officially unveiled by the FCC tomorrow?

As I wrote last week:

“The two key questions about the effort to get the United States up to speed, so to speak, with decent digital access: Will it be toothless or not and will there be any money to pay for it, given the cash-strapped federal government?”

A possible highlight of the plan concerns whether spectrum should be allocated for a free or inexpensive high-speed wireless service, as well as restoration of some regulations lifted in the previous Republican administration.

But the main focus will be that the U.S. needs high-speed access to improve dramatically across the nation, especially for poorer citizens and in rural areas.

After a quarter-century of .com, the growth of a trillion-dollar industry from one punctuation mark and three letters, and badillions of page views, you would think this would be glaringly obvious to our federal government.

You should think it would.

Evidently, the German telecommunications outfit is looking to placate shareholders dismayed by the unit’s performance of late. Not only is T-Mobile trailing far behind rivals like AT&T (T), Verizon Wireless (VZ), and Sprint (S), it’s losing subscribers. In the third quarter of 2009, for example, T-Mobile lost a net 77,000 customers.

Were Deutsche Telekom to move ahead with a T-Mobile IPO, it might be able to raise enough capital to build out its network, improve reception in major markets and start winning back some of the subscribers it has been losing.