
Ello Raises $5.5M, Legally Files as Public Benefit Corp. - davidbarker
http://techcrunch.com/2014/10/23/ello-raises-5-5-million-legally-files-as-public-benefit-corp-meaning-no-ads-ever/
======
imaginator
Facebook's statement: "Trust us. We'll show you ads."

App.net's statement: "Trust us. We'll charge you so you don't have to see
ads."

Ello's statement: "Trust us, we won't show you ads."

The statement we deserve is akin to email's promise: you don't have to trust
us; competing providers keep the ecosystem honest. (And the service is
federated so you can connect with friends on other services)

Ello strikes me as another silo'd service. What happened to the dream of
building "big" services that outlast a single company or team? The 30 year
lifespan of SMTP+email, the 20 year life of HTTP, the 10 year life of XMPP.

Today we have users voting with their feet: eg I use Twitter/I stopped using
Twitter after they pissed off the developer community.

Wouldn't it be great if we built services where the decision isn't use/don't
use, more, my identity follows me to the best service provider (heh, like
email!)?

The real statement should be: "you don't have to trust us, this is a protocol:
- developers can write services against it, users can choose the developers
service they like the best. And when that service goes pop, or the developer
moves onto a new project, you are not stranded - just switch providers.

(disclaimer: this stuff makes me angry and we're trying to solve it at
Buddycloud Towers)

~~~
mithaler
_Today we have users voting with their feet: eg I use Twitter /I stopped using
Twitter after they pissed off the developer community._

The fraction of users who actually do this is so tiny that they don't make a
dent in Twitter's userbase. The vast majority of users don't care about
"trust", or "privacy", or ads, or federation, or API limits, or the ability to
leave the provider if it turns evil. They care about where their friends are.
That's literally the only feature that draws users in the numbers that make a
social network last. I wouldn't expect Ello to be able to convince enough
people to join and stay without massive, enthusiastic, engaged adoption -- and
what engagement it has is coming from the bandwagon effect, not its promise of
no ads.

By the way, remember Diaspora[0]? It's an open-source, federated social
network that anyone can host, that requires no trust in any individual
provider, and with no ads. It still exists, after attracting quite a lot of
attention and Kickstarter funding a few years ago. And it dropped almost
entirely off the radar, because its selling points have nothing to do with
people's friends actually being there.

[0] [https://joindiaspora.com/](https://joindiaspora.com/)

~~~
hiou
I feel like they should rename the Millennials the "Give Up Generation". You
guys just take defeatism to 11 every time any tries to say something hopeful
for people to start doing what's better for the world. Good grief. Let the
poor guy dream for a minute.

~~~
mjwhansen
Millenials are actually much more optimistic and prone to idealism (as
represented by volunteerism rates) than other generations:
[http://www.pewsocialtrends.org/files/2010/10/millennials-
con...](http://www.pewsocialtrends.org/files/2010/10/millennials-confident-
connected-open-to-change.pdf)

~~~
hiou
Could you explain how idealism and volunteering are mutually inclusive?

I would definitely agree that Millenials are optimistic. About themselves
personally. Defeatist about everyone else. That was what I was talking about
in the above comment and maybe I should have clarified that more carefully.

------
jnsaff2
Two observations:

a) after signing up there setting "Allow Ello to gather anonymous information
about your visit, which helps us make Ello better. Learn more." defaults to
YES.

This from a site that is selling themselves as a privacy conscious is simply
comical.

b)
[https://www.ssllabs.com/ssltest/analyze.html?d=ello.co](https://www.ssllabs.com/ssltest/analyze.html?d=ello.co)

\- SHA1 cert

\- No FS

\- Defaults to RC4

Their ops team has not paid attention to properly configuring TLS. Not
encouraging at all.

If anyone at Ello is reading this there is an excellent resource for securing
your TLS setup at
[https://wiki.mozilla.org/Security/Server_Side_TLS](https://wiki.mozilla.org/Security/Server_Side_TLS)

~~~
ddw
Their app is full of hilarious bugs and hacks. But I guess that money can buy
them a real dev team?

~~~
rco8786
Don't really fault them here. Every startup's app is full of hilarious bugs
and hacks.

------
gk1
I still don't understand what value Ello brings. It seems to be a social media
network for the sake of being a social media network.

Myspace let young people (and then everyone) connect online, share photos, and
declare who's their friend.

Facebook let young people (and then everyone) chat with and follow their
classmates, and eventually let everyone keep in touch (using that phrase
loosely) after graduation.

Ello let's -- uh, let's say tech-savvy 20- and 30-somethings? -- do -- uh,
let's say send messages? -- without seeing ads.

The mission statement is equally vague.

"Ello is a simple, beautiful, ad-free social network."

~~~
lobotryas
Ello has a few USPs as I understand:

1\. They let you choose any name you want (none of the "real name" stuff)

2\. They are very friendly, focused and responsive to the needs of LGBT
community

3\. No ads (and thus less incentive to data mine the users, one hopes)

4\. They simply don't have the history of Facebook and co

5\. At least right now they are young, hip and very exclusive with invite-only
membership (unlike Facebook that has everyone AND your grandma)

~~~
hobofan
> 2\. They are very friendly, focused and responsive to the needs of LGBT
> community

What special needs does the LGBT community have, that are not being filled by
other social networks?

~~~
jliptzin
I am gay and even I don't know the answer to that question

------
ryanpardieck
Well, that's interesting, although I'm skeptical. Can anyone with legal
experience say exactly how much this means? If Ello genuinely just did
something that makes it difficult for future investors/acquirers to turn Ello
into a ad-fueled, data-selling, privacy-undercutting behemoth, then that's
pretty encouraging.

But ... it just seems "too good to be true." I've expected them to be about as
"ad free" as every other business whose initial ideals are abandoned once the
founders have gotten theirs and moved on.

~~~
aidenn0
IANAL, but the statute this is using is only a year old, so the answer will
likely "we can guess, but don't know for sure until there is caselaw behind
it"

Until recently most public benefit corporations were specifically chartered by
the government (e.g. USPS, CPB), but a number of states have created a law for
privately establishing them recently.

~~~
ryanpardieck
Wow, that's really interesting. Did not expect it to be something so new. I'm
going to have to read more about this ...

------
pearjuice
Lovely how $5.5M is thrown at a simple CRUD app without revenue, exists due to
viral marketing and not even near a stable or representative user base (people
want to get in for the sake of being in). How can a social network be invite
only? It is the "cool people" table all over again.

Looking forward to the billion dollar valuations.

------
SomeCollegeBro
Amazing to me that a site that is both hard on the eyes and not nearly as
usable as its competitors has raised $5.5M. How do investors think they will
make their money back? Simply by microtransactions and paid features? Perhaps
the investors are that optimistic, and they think this is the future of social
networking.

~~~
enraged_camel
>>Amazing to me that a site that is both hard on the eyes and not nearly as
usable as its competitors has raised $5.5M.

Raising money, at least initially, is about two things: user traction and good
PR. I don't know how many users Ello has, but I've personally been hearing
about them all over the place, especially from my early-adopter type friends
on Facebook. This leads me to believe that the company has a really good PR
firm working for them behind the scenes (PG's "submarine" analogy comes to
mind).

And the thing is, Ello may be hard on the eyes and not be very usable now, but
both of those things are relatively easy to improve. If they do have good user
traction, that means they have solved the hardest problem, at least in my
opinion. Achieve growth and the rest follows rather naturally.

------
reduce
"which Ello says makes it legally impossible under US law for investors to
require Ello to show ads, sell data, or sell the company to any buyer who
would violate those conditions"

Quite possibly the silliest thing I've ever seen written in Techcrunch.

~~~
_delirium
Yes, the status is pretty weak if you think of it as some kind of protection
from investors. A "public benefit corporation" compared to a regular
corporation removes only one specific route investors could use to force a
company to do something: a shareholder lawsuit alleging that the company is
failing to maximize shareholder value. But in the post-WW2 era, even regular
corporations have no legal duty to maximize shareholder value, and can be run
according to a number of principles (the belief to the contrary is a mixture
of some early 20th century cases combined with a good amount of urban legend
about corporate law). Especially considering that nearly anything can be
justified as "part of our brand image", and courts aren't interested in
second-guessing that: if Ello thinks it's important to its brand image to not
show ads, a court is not going to inquire into whether this is a good or bad
business decision, regardless of whether it's a public-benefit corporation or
a regular one.

All the other ways investors could force a corporation to do something, such
as pressuring the board, voting in directors, voting on shareholder
resolutions, etc. remain available. If the investors think Ello should show
ads, or should sell to Google, or anything else, they have good ways of making
that happen (given sufficient share ownership/etc.).

------
gault8121
A benefit corp can always vote to remove its benefit corp status. If a
majority of the ownership goes to investors, they can vote to revoke the no
advertising clause.

Public Benefit Corporations really don't have teeth, at least as far as I am
aware.

~~~
BashiBazouk
According to the Delaware Public Benefit Corporation rules it requires a two
thirds majority of share holders to change status. If that is held up by the
courts it's some teeth but not absolute protection against change.

~~~
sandycheeks
If they gave over a third ownership to EFF things would become interesting.
Don't see it happening though.

~~~
BashiBazouk
Under 2/3rds I wonder what would be best long term? A founder owning at least
a third could be a problem if when they died, those shares went to someone who
was more interested in profit than stated goals. Maybe to get access to the
social network you have to buy a share? Spread out the shares to enough
individuals and put in language to prevent proxy voting and require a minimum
percentage of share holders to vote to change those stated goals?

------
Animats
Ello is demonstrating something important - you can now undercut "free with
ads" on price. How much, per user, does it really cost to run a social network
now? Not much. Hosting is so cheap that Atlantic will rent you a full-time
virtual machine for $0.99/month. Ello's actual computing cost is probably less
than that.

Selling ads is expensive. A majority of Google's headcount is ad sales reps.
The main search engine, a few years ago, was developed and run by about 90
people, I was told by an ex-Google employee. Google probably spends far more
running the ad side of the business than the search side.

Craigslist has 40 employees, and they've been able to crush the newspaper
classified advertising industry. They charge for a few categories of listings.
That's enough to keep them going.

At some point, users sense that there are too many ads. Myspace went there
when they had a revenue drop and tried to make up for it by increasing the ad
density. Big mistake. Myspace usage went into a screaming dive and never
pulled out.

The big ad-supported web-based businesses are fighting Moore's Law. What they
do is getting cheaper, but their price, in terms of ad density, isn't going
down to match. That makes them vulnerable. There's hundreds of billions in
market cap out there just waiting to be destroyed.

~~~
smacktoward
_> How much, per user, does it really cost to run a social network now? Not
much._

How much, per user, does it cost to run a social network? Not much.

How much, per user, does it cost to run a social network _at scale?_ Quite a
bit more.

~~~
Animats
If the cost per unit goes up with volume, you're doing something very, very
wrong.

------
vesche
It all sounds nice, but we all know there's always two end senarios if their
service takes off... They grow a user base, get shot a NSL: 1) Keep the
success rolling and continue on business as usual while their naive users are
data farmed. 2) Pull a lavabit.

Think we all know senario two is unlikely. I'll stay away from social media
for the time being, perhaps until some decentralized mesh net encrypted p2p
service becomes a reality. 2020?

------
minimaxir
Note that the Twitter response to this news is generally "wait, Ello still
exists?"

Additionally, let's say they'll make their money through subscriptions instead
of display ads. Then they can just adjust the UI/UX to push toward
subscriptions, which will result in the problem that Ello had claimed to be
solving. The $5.5M has to result in an exit, somehow, and therefore the
incentives between business and consumer are misaligned.

~~~
67726e
> $5.5M has to result in an exit, somehow.

Or maybe they'll run an actual business, instead of the startup pump-and-dump.
Not every success story has to be "an exit"

~~~
oddevan
The investors have to have some way to convert their ownership in the company
into liquid assets at some point. Either that's on the open market through an
IPO, by another company through an aquisition, or maybe Ello can have enough
cash-on-hand to buy back those shares or pay dividends to their investors.

If there's other ways, please tell me; I'm genuinely curious about this! But
as far as I can tell, even "run[ning] an actual business" has to have some
sort of "exit" for the investors. It's my hope that Ello can buck the "acquire
or IPO" trope, but their investors have to be on board with it. And with
$5,500,000 invested, even the most patient investors have a limit.

~~~
67726e
Exit seems to imply the "get rich quick" scenarios of a buyout or IPO. I'm
saying an alternative exists: Make money running a business the old fashioned
way.

The last company I was a part of had a similar level of investment, and they
aren't selling. They aren't looking at an IPO, instead they manage a healthy
20M/year in revenue, with a a healthy profit margin. Not everything is an
"exit"

------
jscheel
Ello is the new Clinkle

~~~
th0br0
What's Clinkle?

~~~
kolev
The new Color.

~~~
joeblau
LOL, This entire thread has me in crying. I think the underpinnings of Color
were very ambitious, but the way the product was released was not orchestrated
very well.

~~~
smacktoward
Indeed, it's almost like they fell onto the wrong Path.

