Rami Alkarmi.Entrepreneur. Invest. Business Models

There’s a report floating around claiming that early Tumblr investor Union Square Ventures (USV) netted a 5,000X return when Yahoo paid $1.1 billion for the social-blogging site.

The same report, which comes from PrivCo, an private firm that reports on startups, claims to have exacting details about how much each employee made on the deal.

USV partner Fred Wilson has responded to the report on Hacker News, saying, “Total garbage. There is not one fact in this privco thing that is close to right. The numbers are good but nowhere close to that good. This is the same firm that predicted Foursquare would be out of business this year which will also prove to be nonsense.”

Early Tumblr backer Bijan Sabet is also knocking down the report on Twitter saying, “that article and the corresponding privco report is complete garbage and incorrect.”

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Microsoft just announced its new gaming console, the Xbox One. 

So what do we think? Check out our snap reaction to Microsoft’s vision of the future of living room entertainment below.
 

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During a press conference on Tuesday to launch VMware’s new cloud, Bill Fathers, VMware’s top cloud exec, dropped a bombshell: VMware would be “the first and only cloud provider” to offer SAP’s popular and pricey software on a monthly subscription plan, including SAP’s Oracle-killer HANA database.

Monthly subscription pricing of its software is something that SAP doesn’t even offer its customers of its own brand-new cloud.

Fathers offered no other details and neither company released a formal press announcement. 

We just heard from SAP that the partnership, while good, may not be as epic as all that. Here’s the plan so far:

• The version of HANA is the same scaled-down one that’s been on Amazon since October. It’s called SAP HANA One and it tops out at 60 GB of RAM, or random-access memory, per instance.
  
  In comparison, a typical on-premises version of HANA begins with 64 GB of RAM and goes up from there—to terabytes. The amount of memory is important since this is an in-memory database, meaning it does all of its work on data stored in memory rather than on disk. The bigger the RAM, the more data it can process.
• SAP customers who already have traditional software licenses won’t owe SAP more money to use VMware’s cloud. They will need to pay VMware monthly cloud usage fees. That’s the same deal for running SAP software on Amazon’s cloud, too.
• Besides HANA, other popular SAP apps will be available for rent on VMware’s cloud, though we don’t know yet which ones. These will be “core” apps, SAP says, so presumably it will be the company’s bread-and-butter financial/enterprise resource planning software.
• There’s no word on pricing yet, or availability.

VMware says it will roll its cloud out to U.S. customers in Q3 this year, and to Europe and Asia in 2014. So perhaps the SAP apps will be available around then. 

SEE ALSO: 15 Enterprise Tech Rock Stars You’ve Never Heard Of But Should Know

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The Microsoft Store Online and Amazon are both taking sign ups for the new Xbox One console.

(Microsoft will give you $10 off if you reserve through them.)

Here’s what you do:

Head to either the Microsoft Store Online or Amazon and enter your email. You’ll be notified as soon as pre-orders are available.

Unfortunately we don’t have a price or release date on when Xbox One will be available, but Microsoft says you can expect it later this year.  

DON’T MISS:  Everything Cool About Microsoft’s New Xbox

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Microsoft’s new video game console, the Xbox One, won’t be able to play older Xbox 360 games. The news came out following the company’s big presentation this morning.

According to Todd Holmdahl, the Xbox hardware boss, the move was necessary to push the Xbox platform forward and enable more advanced games.

“We created a new architecture,” Holmdahl said in an interview. “It was too much of a burden for us to develop for both sets of games.”

He also said it wouldn’t be possible for future software updates to add backwards compatibility.

So all those Xbox 360 games you have sitting on your shelf? The only way you can play them is if you hang on to your old console. Historically, console makers have done their best to ensure new devices were compatible with older games. But it looks like Microsoft found it more beneficial to pack all those extra features in the new console rather than allow you to play older software.

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Twitter is increasingly popular with teenagers, according to the latest data from Pew Internet and American Life Project.

It found that 24% of teenagers are using Twitter, up from 16% last year. Facebook is still the most popular social network with 77% of teenagers saying they have an account.

One reason Twitter is growing in popularity is that teens are looking for relief from Facebook, which is filled with parents and “drama.”

A fourteen year old girl said, “I think Facebook can be fun, but also it’s drama central. On Facebook, people imply things and say things, even just by a like, that they wouldn’t say in real life.”

Another sixteen year-old girl explained her social media habits saying, “Instagram is mostly for pictures. Twitter is mostly for just saying what you are thinking. Facebook is both of them combined so you have to give a little bit of each. But yes, so Instagram, I posted more pictures on Instagram than on Facebook. Twitter is more natural.”

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Apple CEO Tim Cook testified to Congress about Apple’s tax-dodging today.

He did a superb job.

Within minutes, he had parried a few lame attacks from Senators Levin and McCain. And for the rest of the hearing, he had the rest of the sub-Committee eating out of his hand.

As Cook explained, Apple does indeed employ spectacularly successful tax-dodging techniques. But they’re all perfectly legal. So, as is often the case, if Congress is looking for someone to blame, Congress can start by looking in the mirror.

Not long into Tim Cook’s testimony, Congress began asking him for advice on how to change the tax code to encourage companies to use their cash to invest in the United States.

Cook said that Congress should cut the “repatriation” tax on cash earned overseas from 35% to a “single-digit” percentage. This cut, Cook suggested, would encourage so many more companies to repatriate cash that it would be revenue neutral. The government would reap less tax per dollar of repatriated cash, but a lot more cash would get repatriated.

This might actually be an excellent idea.

But the sub-text of the discussion was that, if companies repatriated more cash, they would use it to “invest in America”—hiring more Americans, building more plants, etc.

That’s a nice theory.

Based on historical precedent, however, it’s also a bunch of crap.

In 2004, you may recall, Congress gave companies a “repatriation holiday” that allowed them to bring boatloads of cash home without paying tax. The idea was that corporations would use this cash to invest in America.

So, did companies actually use the cash to invest in America?

As if!

According to a 2011 post-mortem unearthed by Anthony DeRosa of Reuters, here’s what happened after the repatriation bonanza:

• Companies reduced their American workforces
• Companies did not invest any more in research and development
• Companies increased their stock repurchases
• Companies paid their executives more
• Only huge multi-national companies benefitted
• Cash balances radically increased

1. U.S. Jobs Lost Rather Than Gained. After repatriating over $150 billion under the 2004 American Jobs Creation Act (AJCA), the top 15 repatriating corporations reduced their overall U.S. workforce by 20,931 jobs, while broad-based studies of all 840 repatriating corporations found no evidence that repatriated funds increased overall U.S. employment. 

2. Research and Development Expenditures Did Not Accelerate. After repatriating over $150 billion, the 15 top repatriating corporations showed slightdecreases in the pace of their U.S. research and development expenditures, while broad-based studies of all 840 repatriating corporations found no evidence that repatriation funds increased overall U.S. research and development outlays. 

3. Stock Repurchases Increased After Repatriation. Despite a prohibition on using repatriated funds for stock repurchases, the top 15 repatriating corporations accelerated their spending on stock buybacks after repatriation, increasing them 16% from 2004 to 2005, and 38% from 2005 to 2006, while a broad-based study of all 840 repatriating corporations estimated that each extra dollar of repatriated cash was associated with an increase of between 60 and 92 cents in payouts to shareholders.

4. Executive Compensation Increased After Repatriation. Despite a prohibition on using repatriated funds for executive compensation, after repatriating over $150 billion, annual compensation for the top five executives at the top 15 repatriating corporations jumped 27% from 2004 to 2005, and another 30%, from 2005 to 2006, with ten of the corporations issuing restricted stock awards of $1 million or more to senior executives.

5. Only a Narrow Sector of Multinationals Benefited. Repatriation primarily benefited a narrow slice of the American economy, returning about $140 billion in repatriated dollars to multinational corporations in the pharmaceutical and technology industries, while providing no benefit to domestic firms that chose not to engage in offshore operations or investments.

6. Most Repatriated Funds Flowed from Tax Havens. Funds were repatriated primarily from low tax or tax haven jurisdictions; seven of the surveyed corporations repatriated between 90% and 100% of their funds from tax havens.

7. Offshore Funds Increased After 2004 Repatriation. Since the 2004 AJCA repatriation, the corporations that repatriated substantial sums have built up their offshore funds at a greater rate than before the AJCA, evidence that repatriation has encouraged the shifting of more corporate dollars and investments offshore.

8. More than $2 Trillion in Cash Assets Now Held by U.S. Corporations. In 2011, U.S. corporations have record domestic cash assets of around $2 trillion, indicating that that the availability of cash is not constraining hiring or domestic investment decisions and that allowing corporations to repatriate more cash would be an ineffective way to spur new jobs.

9. Repatriation is a Failed Tax Policy. The 2004 repatriation cost the U.S. Treasury an estimated net revenue loss of $3.3 billion over ten years, produced no appreciable increase in U.S. jobs or research investments, and led to U.S. corporations directing more funds offshore.

So much for the theory that, if we cut companies a break to “repatriate” their cash, they’ll use it to invest in America.

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David Karp is the face of Tumblr, a social content platform that was recently acquired by Yahoo for $1.1 billion.

But he isn’t the only person who deserves credit for the company’s success. Numerous executive and investors helped Tumblr grow and become the company it is today.

Four in particular come to mind.

Bijan Sabet - Sabet, a partner at Spark Capital, gave Karp his first term sheet. He helped convince Karp that Tumblr was a business, not just a side project. “I basically spent the summer of 2007 trying to talk him into starting a company around it,” Sabet told Forbes’ Jeff Bercovici in January. ” Spark led Tumblr’s first round of investment.

Marco Arment - Arment was Tumblr’s first employee. He joined Karp’s vision in 2006 and helped keep the passionate designer in check. “I was never the “idea guy” — in addition to my coding and back-end duties, I often served as an idea editor,” Arment wrote of his time at Tumblr. “David would come in with a grand new feature idea, and I’d tell him which parts were infeasible or impossible, which tricky conditions and edge cases we’d need to consider, and which other little niceties and implementation details we should add.”

John Maloney - Maloney was hired to turn Tumblr into a real business. He joined in 2008; he and Karp met while working for Urban Baby, a company that was acquired by CNET in 2006. “As a mentor he taught me, among many things, how to convincingly act like an adult,” Karp wrote to his team when Maloney left Tumblr in April 2012. Maloney was never replaced after his departure, although Tumblr actively tried to scout a new President. “I was also completely neglecting: our bills, our investors, our office, hiring, our lawyers, and the thousands of emails that were sitting in my inbox…John magically put everything in order…John was the catalyst for everything [Tumblr has] accomplished.”

Peter Vidani - Peter Vidani is Tumblr’s lead designer and he helped create the simplistic look and feel of the blog platform. He joined as the company’s 6th employee. 

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VMware’s software runs in pretty much every enterprise data center on the planet, and now VMware is setting its sights on a much bigger market. 

On Tuesday, VMware unveiled its vCloud Hybrid Service, which is a “public cloud” service that lets customers rent servers and storage over the Internet. It’s similar to Amazon Web Services, which dominates the public cloud industry. But VMware has tailored its cloud for enterprises. 

Lots of other competing cloud service providers are doing the same thing, including IBM, HP and Microsoft, who all have cloud services geared for big businesses.

But the vCloud Hybrid Service has an edge in one special way. It works well with VMware’s “server virtualization” software, which lets lots of apps and operating systems be packed onto a small number of physical computer servers.

With vCloud Hybrid Service, customers can easily move their apps from their own data centers to a vCloud service without having to rewrite their apps, or change their IT management software. 

“This, to us, is the magic that made virtualization real in the first place,” VMware CEO Pat Gelsinger said in a Tuesday press conference at VMware’s Palo Alto, Calif.-based headquarters.

Despite Amazon’s success, some enterprises still distrust the public cloud and think putting their valuable corporate data there is a recipe for disaster. Amazon also has a reputation for outages. That’s the sort of customer VMware is targeting. 

Another important point is that enterprises can run all their enterprise apps on vCloud Hybrid Service without a lot of testing. That will save them from “hidden costs” with other clouds, says VMware’s GM of cloud, Bill Fathers. This is a complaint customers have with Amazon’s cloud.  

vCloud Hybrid Service will launch as a private beta next month and will be available in the U.S. in the third quarter. It will be available in Europe and Asia in 2014.

There are two versions of the vCloud Hybrid Service: One where customers get their own dedicated hardware, sold on an annual contract with prices starting at 13 cents per hour for a 1 GB virtual computer with 1 processor.

The second is where customers share the hardware, known as a “multi-tenant” cloud. Customers will pay monthly for this option, and pricing starts at 4.5 cents per hour for 1 GB virtual computer with 1 processor.

Prices might still be adjusted. “We’re very focused on making sure we remain competitive,” Fathers said.

VMware is running vCloud Hybrid Service from four partner’s data centers, as opposed to spending tons of money to build its own. But it’s not naming its partners.

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Apple CEO Tim Cook charmed the Senate today, testifying on the company’s tax avoidance practices.

The most interesting part of the story wasn’t on the Senate floor, however.

The report published by the Permanent Subcommittee on Investigations detailing Apple’s strategies is a great read on its own.

The report gives an inside look on Apple’s absolutely genius tax avoidance strategies. 

Apple uses a variety of offshore structures an arrangements to shift billions of dollars from the United States to Ireland.

The U.S. corporate tax rate is 35%, while Apple has negotiated a special corporate tax rate in Ireland of less than 2%.

Apple has found the secret to not paying taxes. You just avoid taxes by not declaring a tax residency for the company that oversees the entirety of your international income. 

First, let’s look at Apple’s main offshore holding company:

Apple Operations International (AOI) is the company’s primary offshore holding company. It was registered in Cork, Ireland in 1980, and its purpose is to serve as a cash consolidator for most of Apple’s offshore affiliates. It receives dividends from those affiliates and makes contributions as needed.

• Apple owns 100% of AOI either directly or through controlled foreign corporations. 
• AOI owns several subsidiaries, including Apple Operations Europe, Apple Distribution International, and Apple Singapore.
• AOI has no physical presence and has not had any employees for 33 years. It has 2 directors and 1 officer, all Apple Inc. brass. One is Irish, two live in California. 
• 32 of 33 AOI board meetings were held in Cupertino rather than Cork. 
• Shockingly, AOI doesn’t pay taxes. Anywhere. The holding company had a net income of $30 billion from 2009 to 2012, but has not declared tax residency in any jurisdiction. 
• AOI’s income made up 30% of Apple’s total world profits from 2009- 2011.

• ASI buys Apple’s finished products from contracted manufacturers in China — think Foxconn — and resells them at a major markup to other Apple affiliates in Europe, the Middle East, Africa, India and the Pacific.
• Although ASI is an Irish incorporated entity and the purchaser of the goods, only a small percentage of Apple’s manufactured products ever entered Ireland. 
• Upon arrival, the products were resold by ASI to the Apple distribution affiliate that took ownership of the goods. 
• Before 2012, ASI had no employees despite $38 billion in income over three years.
• This arrangement facilitated the shift of $74 billion in worldwide profits away from the United States from 2009 to 2012.
• ASI’s parent company is Apple Operations Europe Inc. Together they own the intellectual property rights to Apple goods sold offshore.
• Like AOI, ASI claims to be a tax resident of nowhere. It’s not obligated to pay taxes to any nation. 

Apple Sales International pays very, very little in global taxes:

The rest of the report is fascinating, but somewhat obtuse for people uninterested in international corporate finance.

Basically, Apple makes sure that income isn’t taxed by the U.S. by exploiting a loophole in Subpart F of the corporate tax code.

They’re able to route profits offshore and keep them there through licenses. 

Here’s the bottom line. 

Apple was kind enough to tell the Senate investigators exactly how many taxes the company has dodged over two years by these arrangements:

Every day, Apple avoids paying more in taxes than Tumblr can hope to make all year.

Click here to read the full report > 

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Poll says teens sharing more on social media sites, trending more to Twitter

WASHINGTON (AP) — Twitter is booming as a social media destination for teenagers who complain about too many adults and too much drama on Facebook, according to a new study published Tuesday about online behavior. It said teens are sharing more personal information about themselves even as they try to protect their online reputations.

Teens told researchers there were too many adults on Facebook and too much sharing of teenage angst and inane details like what a friend ate for dinner.

“The key is that there are fewer adults, fewer parents and just simply less complexity and less drama,” said Amanda Lenhart of the Pew Research Center, one of the study’s authors. “They still have their Facebook profiles, but they spend less time on them and move to places like Twitter, Instagram and Tumblr.”

In the poll, 94 percent of teens who are social media users have a profile on Facebook — flat from the previous year. Twenty-six percent of teen social media users were on Twitter. That’s more than double the figure in 2011 of 12 percent.

In what is likely a concern to parents, more than 60 percent of the teens with Twitter accounts said their tweets were public, meaning anyone on Twitter — friend, foe or stranger — can see what they write and publish. About one-quarter of kids said their tweets were private and 12 percent said they did not know whether their tweets were public or private.

Teens are also sharing much more than in the past.

More than 90 percent of teen social media users said they have posted a picture of themselves — up from 79 percent in 2006. Seven in ten disclose the city or town where they live, up from about 60 percent over the same time period. And 20 percent disclose their cell phone number — up sharply from a mere two percent in 2006.

At the same time, teens say they’ve taken steps to protect their reputations and mask information they don’t want others to know. For example, nearly three-quarters of teen social media users have deleted people from their networks or friends list.

The researchers surveyed 802 parents and their 802 teens. The poll was conducted between July 26 and September 30, 2012, on landline and cell phones. The margin of error for the full sample is plus or minus 4.5 percentage points.

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Microsoft just revealed their new weapon in what will be the newest next gen console wars, the Xbox One. Already, discussion threads asking “will you buy Xbox One or PS4?” are popping up in gaming forums around the internet. 

This is an old debate that goes back as long as competing gaming consoles have released together. Nintendo versus Sega Genesis. PlayStation versus Nintendo versus Sega. Xbox versus PlayStation 2. Xbox 360 versus PlayStation 3. Evolution versus Creationism. It gets that heated. 

Each console cycle the debate rages anew, illogical fanboyism reaches feverish heights, and new trolls are born and slain in equal measure. 

Today’s Xbox One reveal will set in motion a new generation of arguments about frame rates, graphics comparison, first party exclusive game titles and the ever popular computing horsepower fights. 

The prices for each system are likely to be about the same — around $350 dollars give or take — making purchasing both at the same time unlikely for most people. 

Xbox One is angling to be more of the “everything” console with Skype chat, Snap, TV integration, and even exclusive shows like a Steven Spielberg produced Halo series.

Sony is betting on less of an all encompassing entertainment approach and focusing  on a “games for gamers” appeal. 

Both will be nasty, nasty machines in their own ways.

Read up on what’s known about each so far:

• Learn up on Xbox One
• Learn up on PlayStation 4

So, which console will you be buying come November, and why?

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Microsoft revealed its next-generation video game console, the Xbox One, at a big press event today.

Here’s a quick roundup of everything it can do.

Here’s what it looks like. That’s the Kinect sensor on top, the console in the middle, and the controller in the front.

The Xbox One has a lot of powerful specs, including a 500 GB hard drive, WiFi direct, 8GB of RAM, and a Blu-Ray player.

This is what the controller looks like.

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Amazon is building a new headquarters in Seattle. It has scrapped plans for a rectangular design and has replaced it with three connected domes.

The structure’s design inspiration comes from buildings all over the world, including a zoo in Germany and gardens in Singapore. It will be tall enough to accommodate fully-grown trees inside.

The domes could take more than six years to build and the headquarters would take up 3.3 million square feet. The proposal is being discussed at Seattle’s City Hall tonight.

Here’s what the proposed Amazon dome headquarters will looks like when it’s finished.

And an aerial view of the surrounding Seattle buildings.

Here’s the headquarters that was previously proposed and approved.

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Earlier this month we put out a call for the most creative people in social media marketing.

Well, the deadline has been extended, so you now have until end of day Friday May 24 to let us know who is dominating Facebook, Twitter, Instagram, Vine, Pinterest, and whatever social platforms are out there.

A brilliant social media campaign can be anything from taking advantage of a cultural moment — people are still talking about Oreo tweeting an image with the text “you can still dunk in the dark” during the Super Bowl blackout — to a complex Facebook marketing campaign.

We’re looking for it all … we just need you to tell us who’s doing it and why it’s cool. Nominees can be either agency folk or client-side marketers. We will then rank them based on creativity and innovation.

Here are the criteria. Nominations that fail to follow these criteria will be downgraded in our review process, in order to punish lazy, self-serving or otherwise fluffy nominations.

• Email Laura Stampler, Lstampler@businessinsider.com, by Friday, May 24. 
• Send the name of your nominee(s), his or her company and job title, and why he or she is the most creative in the field.
• Give specific, detailed examples of actual work they have done. We like using visuals, so try to include images illustrating their work.
• Send us a photo of the nominee that we have permission to publish.
• NOMINATE A COMPETITOR. It’s important that we have the best of the best, so we need to know who the competition is. This is a requirement! This means another creative individual in the social media marketing world who doesn’t work at your company. Nominations will be kept confidential. Emails that do not contain a competitor will be downgraded in our ranking.

Help us figure out who is dominating in the industry.

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