As smartphone adoption rises and technology companies embrace the technology, QR Codes are becoming more of a mainstream product for businesses, products and brands. QR Codes, which is short for Quick Response, are used to take a piece of information from a transitory media and put it in to your cell phone – this can be links, videos, text, photos and more. Today, Y Combinator-backed Paperlinks is launching a new way for businesses to engage consumers with QR codes.

Essentially, Paperlinks creates QR codes for businesses and brands but with a particular focus on the design of the code itself. The actual code can incorporate the logo of a brand or business.

The beauty of Paperlinks is that instead of leading peoples to a web page (as most QR codes do), Paperlinks app and codes open up a landing page with the company’s logo and other modules, which can include Tweets, calendars, video, contact info, photos and more.

Paperlinks has its own free QR reader app available for the iPhone. But the startup’s codes are compatible with any QR reader on a phone (i.e. RedLaser’s QR reader would work on any Paperlinks code).

One compelling feature that Paperlinks includes in the landing page is the ability to add content from the brand or business directly to your own applications. For example, if you scan a QR code for a business, you can click on the contact info in the landing page and it can be added to your contacts. Users have a similar experience when adding events from a calendar and more.

Paperlinks also provides analytics (or “scanalytics”) for businesses, which give then metrics on how effective campaigns are, how long users are spending on landing page, which are most popular modules they are clicking on and more. Paperlinks will also provide print services (i.e. printing QR codes on posters and business cards).

And the implementation is fairly easy for brands. Paperlinks offers brands a web app where they can create a QR code and landing page in minutes. The startup has adopted a freemium model, with the lowest priced plan available for only $25.00 per month.

Current customers include the House of Blues (owned by Live Nation) and Joe’s Jeans. House Of Blues’ QR codes lead to a schedule of concerts at a particular location, which can then be added a scanner’s calendar. We’re told Robert Scoble has been using a Paperlinks business card which has already been scanned over five hundred times.

Not only is Paperlinks, which has only raised money from Y Combinator to date and plans to accept money from the Start Fund, seeing traction among brands, but small businesses are using their technology to add to an online and mobile presence at an affordable price. The startup’s sales have doubled every month, with approximately 2,000 QR code campaigns created in three months.

The startup’s founder, Hamilton Chan, has somewhat of unique background for a startup entrepreneur. He graduated Harvard College and Harvard Law School and worked as a corporate attorney during which he represented NBA star Kobe Bryant on number of business-related transactions. He has also worked in M&A at JP Morgan, in the the entertainment industry at MGM Studios and then took over and turned around his family printing business. Chan says that while his path has been a little unorthodox, he’s always envisioned becoming an entrepreneur.

Next week, I'll proudly be attending the first Digital Agenda assembly, hosted by the European Commission, in Brussels, Belgium. The purpose of the two-day event is to discuss Europe's strategy for a strong digital economy by 2020.

Oh man was that a lot of gaming. John, Devin and I just spent the last week deep in the bowels of the massive gaming convention that is E3. We went to the press conferences, played the demos, and livestreamed the show floor thanks to Ustream and John and Jon from TechCrunch TV. It was a bit overwhelming, and, as viewers of our livestream quickly realized, gaming isn’t exactly our niche. But we trudged on, forced to play unreleased games, eat free food and hit on booth babes.

Nintendo and Sony brought their A Games this year with the Wii U and the PS Vita. Both will no doubt be hits in their respective markets. The Wii U will finally usher Nintendo into the age of HD while freeing gaming from a dedicated TV. The Sony PlayStation Vita is a wonder of technology. The graphics pumped out of the small handheld are simply astounding, but the novel control schemes of the back buttons, touchscreen and gyroscope opens up portable gaming to newfound experiences. Oh, yeah, Microsoft added Bing to Kinect proving you can’t win E3 every year.

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Any third-party Twitter app developer can currently ask you to authorize software using OAuth under the pretense that they will not be able to access any of your private – both sent and received – messages, while in fact they easily can. TechCrunch was contacted by developer Simon Colijn, who hopes to make as many people aware of this privacy issue – or disaster, if you will – as possible.

Colijn created this test application to prove that the anomaly with the authorization process actually exists. You can use a dummy account if you’re not comfortable clicking anything on that page, but I just ran a test with my personal Twitter account.

Sure enough, I was shown an authorization screen that explicitly told me that the app would not be able to access my private messages … after which it swiftly did in mere seconds.

To be clear, the developer had selected the option ‘Read-only’, which means he wasn’t supposed to be able to fetch (and thus download and store) my direct Twitter messages at all.

This obviously gives the term ‘private messages’ a whole new meaning.

One Twitter app developer I’ve since spoken to about the privacy issue, Topify.com founder Arik Fraimovich, suspected that what is going on is this:

Twitter recently updated its OAuth screens, which are supposed to give users greater transparency about the level of access third-party applications have to their accounts.

Fraimovich thinks what happened is that Twitter planned to release the new authentication model (which will limit DM access) on June 1st, and then postponed it to the end of June without fully realizing that the new UI for the OAuth permission screens would already be live.

In other words: what you see is not quite what you get.

The reason why I think this is in fact a serious privacy fail that shouldn’t be simply swept under the rug: there are currently hundreds of thousands of third-party applications on Twitter, as Twitter itself repeatedly says, and at this point they can all trick you into authorizing their software while you think they will not be able to see your private messages (or do all other sorts of things with them than just view them, like publishing them elsewhere).

One developer I know, Mike Robinson, was kind enough to verify the bug a third time just to make sure it exists, creating a test Twitter application that exploited the privacy hole in just a couple of minutes. Think about that.

Whether this is indeed a UI screw-up, or a more serious system bug of some sorts, it’s an issue that can affect a lot of people’s privacy.

We’ve contacted Twitter about Colijn’s discovery a few hours ago, but haven’t heard back yet (note that it’s early morning in San Francisco).

Either way, think twice before you authorize third-party apps on Twitter, check your settings to see which applications can currently access your account, and in general be careful not to share too much private or sensitive information via direct Twitter messages.

Related reading:

Twitter Revokes Automatic 3rd Party DM Access, Gives Users More Details On App Permissions (May 2011)

Latest Twitter Bug: “Misdelivery of Direct Messages” (April 2009)

DMFail: Another Reason To Just Not Send Private Messages On Twitter (December 2008)

Privacy Disaster At Twitter: Direct Messages Exposed (April 2008)

(Image from Flickr user Dan McKay, used with permission)

Similar to a move made in Illinois a few months ago, Amazon has shut down its Associates program in Connecticut after the state imposed a sales tax measure that would tax any purchases made online starting July 1. We’ve embedded the note sent to participants in the Amazon Associates Program below.

As you may know, the program allows website owners to earn money from advertising and linking to Amazon product on their sites. Connecticut has not been able to collect local sales tax on online purchases because these online retailers don’t have an actual brick and mortar presence in the state. But states like Illinois and Connecticut are maintaining that large e-commerce sites like Amazon and Overstock.com, who both run affiliate programs, have a presence because of these local affiliates.

And now these e-commerce giants are retaliating by pulling their affiliate programs out these states. Amazon has shown in the past that its not afraid to shut down Associates programs in States that impose an online sales tax. The e-commerce giant has made similar moves in Hawaii, Colorado, North Caroline and most recently, Illinois. In fact, Overstock exited Connecticut in late May for the same reason.

As Amazon writes in its note to Connecticut affiliates: We opposed this new tax law because it is unconstitutional and counterproductive. It was supported by big-box retailers, most of which are based outside Connecticut, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that we must take this action.

Amazon says the Affiliate program will be shut down today and all fees earned by affiliates before this date will be paid out to participants.

Hello,
For well over a decade, the Amazon Associates Program has worked with thousands of Connecticut residents. Unfortunately, the budget signed by Governor Malloy contains a sales tax provision that compels us to terminate this program for Connecticut-based participants effective immediately. It specifically imposes the collection of taxes from consumers on sales by online retailers – including but not limited to those referred by Connecticut-based affiliates like you – even if those retailers have no physical presence in the state.

We opposed this new tax law because it is unconstitutional and counterproductive. It was supported by big-box retailers, most of which are based outside Connecticut, that seek to harm the affiliate advertising programs of their competitors. Similar legislation in other states has led to job and income losses, and little, if any, new tax revenue. We deeply regret that we must take this action.

As a result of the new law, contracts with all Connecticut residents participating in the Amazon Associates Program will be terminated today, June 10, 2011. Those Connecticut residents will no longer receive advertising fees for sales referred to Amazon.com, Endless.com, MYHABIT.COM or SmallParts.com. Please be assured that all qualifying advertising fees earned on or before today, June 10, 2011, will be processed and paid in full in accordance with the regular payment schedule.

You are receiving this email because our records indicate that you are a resident of Connecticut. If you are not currently a resident of Connecticut, or if you are relocating to another state in the near future, you can manage the details of your Associates account here. And if you relocate to another state after June 10, 2011, please contact us for reinstatement into the Amazon Associates Program.

To avoid confusion, we would like to clarify that this development will only impact our ability to offer the Associates Program to Connecticut residents and will not affect their ability to purchase from www.amazon.com.

We have enjoyed working with you and other Connecticut-based participants in the Amazon Associates Program and, if this situation is rectified, would very much welcome the opportunity to re-open our Associates Program to Connecticut residents.

Regards,

The Amazon Associates Team

OnLive did E3 big this year. The remote gaming company launched a ton of new games, a universal controller, and displayed their tablet apps. In fact more than a few of our commenters disagreed with our dueling assertion that the Wii U and the Vita won E3 this year; they thought OnLive deserved our meaningless nod. That’s why we made sure we spent sometime at OnLive’s rocking E3 booth.

There’s no questioning the platform’s huge potential. The company seems ready to embed their system in nearly any relevant device and it’s already found in select HDTVs, tablets, computers, and set-top boxes. While I firmly believe it’s not as good as the real thing, OnLive certainly brings proper gaming to systems and devices that would otherwise be left out of the fun. Want to play Duke Nukem Forever using just your Vizio HDTV or Macbook? No problem with Onlive.

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On Monday, Steve Jobs introduced iCloud to the Apple developers at WWDC, and we’ve been absorbing what it means ever since. John Biggs and I devote this entire episode of Fly or Die to iCloud, explaining what it is, why it’s important, and where it falls short. Watch the video above.

At it’s heart, iCloud demotes your computer as your digital hub and moves that hub online. This is not just for your music or photos, but potentially for all apps. And that is one of the biggest shifts for apps that run on iOS since it got started.

If you look at any given app, some push the boundaries more than others. Adding Photo Stream to iPhoto means you can snap a picture on your iPhone and it automatically appears on your MacBook without cables. That’s pretty awesome. The iTunes cloud features aren’t nearly as exciting—it’s basically just a music locker that syncs to all your devices, but there’s no streaming. You still have to download the music to each device. Compared to Google Music or Amazon Cloud, it’s a little bit better, but not amazingly superior.

The bigger point, however, is that Apple making it possible for apps to store, sync, and serve your essential data from teh cloud. And as I, Cringely puts it:

Just like they used to say at Sun Microsystems, the network is the computer. Or we could go even further and say our data is the computer.

If Apple can make iCloud fly, it could change everything.

JouleX– an Atlanta tech startup promising a way to cut energy consumption and reduce costs at large data centers by about half– closed a $17 million round of financing, the company announced today. Investors included: Sigma Partners, Flybridge Capital Partners and Intel Capital, along with earlier investors Target Partners and TechOperators.

The U.S. EPA has not updated national statistics about how much power data centers are using in the country, in years. However, in 2007 the agency estimated that in a year, the nation's servers and data centers consumed about 61 billion kilowatt-hours (kWh) or 1.5 percent of total U.S. electricity, costing around $4.5 billion for electricity alone. The EPA at that time, predicted national energy consumption by servers and data centers would double by 2011 to more than 100 billion kWh, representing a $7.4 billion annual electricity cost.

A recent survey by The Uptime Institute found 36 percent of data center operators and owners believe they’ll run out of space to add the power and cooling systems they need in their facilities by the end of 2012.

It’s not really a surprise that IT infrastructure is pushed to the limit, and energy consumption by data centers is on the rise, now. In general, businesses are relying more heavily on IT for operations, telecommuting and the like, and consumers’ appetite for features that require greater bandwidth and storage capacity — like mobile video, real-time data access and personal data storage in the cloud— is on the rise.

According to the JouleX’s website, its JEM for Data Centers product:

“…Measur[es] dynamic energy consumption and utilization of any device attached to the network, and supports devices such as physical and virtual servers, core routers and switches, storage, power distribution units (PDUs) and others.”

Joulex faces competition from a variety of companies that want to cut energy cost and consumption in large data centers. Some of these — from Calxeda to VMWare — could be competing in the sense that they want a piece of a data center’s budget. However, they could just as likely turn out to be collaborators whose technology works with Joulex solutions. (Calxeda, formerly Smooth-Stone, shares some investors with Joulex.)

[Ed's note: Edited the passage above at 11:55 ET after initial publication to reflect Joulex's potential to collaborate with other players in this space, while competing for a piece of data center budgets.]

Music streaming service Pandora has just filed a new version of its S-1 that indicates the company will be upping the price range of its stock to $10 to $12 per share, giving the company a valuation of $1.9 billion. That’s up from Pandora’s recently pricing of its stock at $7 to $9 per share, at a market cap of $1.3 billion. Pandora’s stock will be traded on The New York Stock Exchange under the symbol "P."

According to the filing, Pandora aims to raise as much as $202.6 million in the offerring (up from $141.6 million), and will offer 6,000,682 shares of its common stock with the selling stockholders are offering 8,683,318 shares of common stock in the IPO.

Pandora initially filed its S-1 in February and now has 94 million registered users. A few weeks ago, the company released its most recent revenue numbers, which reflected an increase in both sales and usage for the internet radio service.

For example, Pandora is adding a new registered user every second. In Pandora’s fiscal year ended January 31, 2011, Pandora streamed 3.8 billion hours of radio listening. In the three months ending April 30, 2011 Pandora posted revenues of $51 million, up from $29.6 million during the same period in 2010.

Pandora isn’t the only company to up the price range of its stock prior to its IPO. Fusion-io, LinkedIn and Yandex also increased their range prior to their IPO debuts.

I am in Chicago where I was supposed to be having dinner with Groupon CEO Andrew Mason last night, a dinner planned more than a month ago when I bought my plane ticket. Instead, he has suddenly decided to go to China.

It was bad news for me, but good news for anyone looking to buy shares in the company. Also good news: TechCrunch has learned that Groupon’s sprawling, costly international operations have recently been brought back under control of Groupon’s more rigorous US management team.

This all matters greatly for potential investors, because as the S1 showed, much of Groupon’s warchest of venture capital has gone to its aggressive international expansion. As we reported last week, Groupon’s U.S operations lost only $10.4 million last year, whereas the international operations lost $170.6 million.

Much of that has gone to China. Five days after Groupon’s January near-$1 billion venture round was raised, a job board advertising Groupon positions in China boasted “near endless” resources from that round to build out the office. Reading that ad and looking at how Groupon has done in China, one could argue not all that money was, shall we say, judiciously spent. A more blunt way of putting it would be Groupon’s China team made drunken sailors look fiscally responsible.

Despite Mason’s blithe statements to the contrary on stage at All Things D, China is not going well for Groupon. In fact, by all accounts, Groupon has made every classic Silicon-Valley-Web-company-enters-China mistake in the book: Sparring with its local partners, putting foreigners who have little understanding of the local market in charge, and focusing hiring on bankers and international MBAs, not locals.

One of two things was going through Mason’s head when he said China was going well: He was doing some hardcore spinning or has no idea just how badly things are going. If it’s the latter, I imagine Mason is getting an eyeful and an earful right about now. If he isn’t, he needs to get out of the Groupon offices and ask some locals how they think Groupon is doing. (I would have asked him about it after he got off stage, but he also cancelled that interview at the last minute.)

Up until now, Groupon’s international operations were run out of Germany by those famously wealthy German Internet tribute artists the Samwer Brothers. Now that the Samwers have transitioned out of the company, TechCrunch has learned that organizational structure is changing radically. All international operations have been brought back under the US headquarters, reporting to new COO Margo Georgiadis, and judging from his sudden travel plans, Mason is getting more involved too.

I discovered this on my recent trip to Berlin, where I was supposed to meet with someone to talk about the company’s sprawling international operations– also a long planned meeting. This one wasn’t cancelled, but I was told just before that the person I was meeting with could only speak about the German market, and that all questions about the broader international strategy had to go through the US. Nevermind that all my previous inquiries about Groupon’s international operations had all been referred to Germany. It seemed no one was able to comment on the leviathan sucking up hundreds of millions of dollars in investor cash.

After much back and forth, I was finally told that the confusion stemmed from the very recent change in who all the international divisions reported to. Now, it’s Georgiadis. When I asked to speak to Georgiadis about the change, I was told the move was so recent she hadn’t even yet had the chance to check in with all of the country heads. (We hear she’s traveling in Europe now, presumably doing just that.) Then, I was told Mason could speak about it at our dinner….which got subsequently cancelled. And all of that was before the quiet period. Now no one is telling me anything about anything.

No one has gone so far to say on the record that the company was unhappy with the job the Samwers did running international operations, rather the official line is that it was a long-planned transition to be implemented when the Samwers left the company. But the impression I’ve gotten from talking to people inside and close to the company is that this is most definitely a good thing.

Indeed, the Samwers have had a mixed record with Groupon’s international operations. Some countries have gone well, some have had early hiccups but are doing better now, and some don’t seem to be going well at all. In many markets Groupon is a solid number two player at best. In Brazil, for instance, Peixe Urbano does better than Groupon; in several of European markets a consortium owned by angel investor Klaus Hommels beats Groupon, and in China a company called Lashao just dominates.

One of Lashao’s investors, GSR Ventures told me several weeks ago he estimates Groupon does just one-tenth of Lashao’s volume in China. “The nature of the business is it’s quite easy to tell how things are going,” GSR’s Richard Lim says. “You just have someone go look at the site and see how many deals they have and how much they are discounting each deal.” Groupon tried to buy Lashao for hundreds of millions of dollars months ago, only to be rebuffed. It has since raised more than $100 million at a $1 billion pre-money valuation, GSR says. Like Groupon, it’s growing insanely fast, eyeing its own high dollar IPO in the future.

No matter what Groupon’s management changes say about how things have gone in the past, the fact that Groupon’s management team is taking a more central role in running what’s been a runaway cash-spending train is no doubt good news for potential investors. It’s hard to imagine there won’t be some changes and new discipline instiled. Maybe Groupon will pull back; maybe it’ll get more aggressive. But I’m betting from now on Mason will have a better idea what’s actually going on in one of the biggest markets in the world.

I can only hope for a future where someone at the company is able to answer basic questions about the company’s biggest cost center. After all, investors probably won’t be quite as forgiving as the press.

BlackBerry maker Research In Motion (RIM) this morning announced intentions to debut the BlackBerry PlayBook tablet in an additional 16 markets over the next 30 days, including the UK, Hong Kong, France, India, Spain and Australia. So far, RIM's iPad competitor has only been available to customers in North America (since April 19, 2011), and has drawn mixed reviews.

Digital media company Evolve Media has acquired Crowd Ignite, a content exchange engine that contextually connects audiences of similar interests, the company announced this morning. The price it paid was not disclosed, with TechCrunch has learned that the deal value was low: $1 million in cash, equity and earn-out commitments, to be precise.

Crowd Ignite enables publishers within defined audience verticals to share their content within a closed network, thereby exposing their content to relevant users on other sites and allowing them to acquire new users and grow their audience.

Crowd Ignite’s proprietary technology is able to track which pieces of content within a site are the most popular, present it to users on sites within the network and then optimize the landing page in a way that presents the content they are most likely to want to consume.

Crowd Ignite has over 300 publishers participating across such verticals as women, fashion, parenting, movies, gaming, and male-lifestyle.

This is where the acquisition makes sense. Evolve Media combines an ad sales business (Gorilla Nation), a video solution (Springboard) and an interactive marketing business unit (Double Helix) with a publishing business (AtomicOnline), which includes such properties as SheKnows, CraveOnline, TheFashionSpot, GameRevolution and Momtastic in its portfolio.

The Crowd Ignite team will continue to run day-to-day operations post acquisition.

The company’s founder and creator, Jake Moilanen, will continue as MD.

The European Commission yesterday granted French entertainment and telecommunication services conglomerate Vivendi approval for its acquisition of Vodafone's 44% stake in SFR, the company announced this morning. The transaction, which is valued at 7.95 billion euros (roughly $11.5 billion), should be completed in the next few days. Vivendi henceforth owns 100 percent of SFR, a French mobile phone and Internet services company with over 20 million customers and more than 12,6 billion euros in revenue for 2010.

Kinnernet in Israel did a lipdub. DLD in Germany did a lipdub.

But at Founders Forum, the annual meeting of European startups CEOs who’ve (for want of a better phrase) “made it”, they like to go one better.

Last night attendees were treated to “On Her Founder’s Secret Service”, which features; Jason Gissing (co-founder of Ocado), Tessa Jowell (MP), Irra K (model & entrepreneur), Marc Worth (WGSN), Gerorge Milford Haven, Eliz Watson, Ola Ahlvarsson, Charlie Muirhead, Lisa Bilton, Jonnie Goodwin, Brent Hoberman, Jimmy Wales and the whole thing was cast by Poppy Gaye. It was produced by Magma Group.

It’s pretty awesome.

Editor's note:This guest post was written by Rocky Agrawal, an entrepreneur who has worked on local products since 1995.  He blogs at reDesign and Tweets @rakeshlobster.

“How much is your average sale here?”

“It’s about five dollars.”

That one question told me Jessie Burke had been sold an unsuitable product. Her average sale was $5 and her Groupon rep had convinced her to run a Groupon for $13.

I already knew how the story ended. Jessie had posted about her experience running a Groupon for Posies Cafe on her blog. She calls running a Groupon “the single worst decision I have ever made as a business owner thus far.” You can read the story in Jessie’s own words.

I wanted to drill deeper and get at the why. I sat with her for an extended conversation. This is only one business owner’s experience, but it is a story worth retelling.

Part 1 – Part 2 – Part 3 – Part 4 – Part 5

Some of the key takeaways:

1. Jessie found about Groupon from a friend who saw that the pizza place across the street was full after running a Groupon. Seeing that “success”, she wanted to give it a try.
2. There is very little information on which merchants can make decisions. Merchants are primarily reliant on the information and recommendations of the sales reps, which can often conflict with the business’ best interest. In a conversation with Groupon CEO Andrew Mason after her blog post went viral, she said “This isn’t a newspaper ad where most people know how to do that. You’ve revolutionized marketing. So nobody knows the parameters unless you tell them. No one told me the parameters.”
3. The sales process seemed like buying a car. Initially, the rep asked for 100% of the revenue. He eventually “settled” for 50% “Understanding that your business is newer, I decided to split the revenue with you,” he wrote. At one point, Jessie was told that she could only ever run one Groupon over the life of the business.
4. Tracking and infrastructure was a really difficult problem. At the time, she didn’t have a computer, so she was reliant on a binder with 900 names in it. It was an inefficient way to track the deal. This also resulted in a lot of fraud as people redeemed coupons multiple times.
5. Groupon controls scheduling of deals, which in this case turned out to be bad for her. Deals are scheduled based on factors that optimize the deal for Groupon, not the merchant. Her deal launched the weekend that the neighborhood library opened. It was the opposite of yield management. She got more traffic when she least needed it. Between the two events, there was a line out the door the whole weekend.
6. The customers she attracted weren’t likely to be regulars. One customer tried to use three Groupons at once. “What are you going to get for $39? Do you want the whole shop? And they were really offended.” “Most people took a trek here. This is definitely a neighborhood shop. People don’t come here from other parts of town just to get coffee.”  Some were abusive to staff and didn’t tip.
7. Most customers didn’t spend much more than the deal value. Groupon told her that something like 98% spent more than the value of the Groupon. “You think maybe like $5 above the value, not like 10 cents.” It’s in Groupon’s interests to make the deal value as high as possible because they get a cut of that. They don’t get a cut of anything extra that someone spends at the business.
8. There was minimal training on what to expect. Groupon sent her a link to a video. There was no explanation of how to handle things like expired coupons. “The onus of responsibility shouldn’t be entirely on this little business that doesn’t know the laws in the first place.”
9. Jessie didn’t do anything to convert Groupon customers into regulars, like asking them to follow her on Twitter or Facebook.
10. She would like to see more transparency. “I think it’s helpful for people to know that you’re not actually giving someone $6, you’re giving someone $3 in our case.”
11. Her Yelp ratings sank after the Groupon as Groupon customers complained about the business.

One of the things I’ve really struggled with in writing this is the potential for readers to view Jessie as ignorant or worse by the Silicon Valley elite. “She doesn’t know what an open rate is? Or what yield management is? Moron.”

That couldn’t be farther from the truth. From our conversation, I could tell that she’s clearly sharp. She shared an email she sent to Mason suggesting ways that he could improve Groupon and her suggestions were on the mark.  Her online presence, including a blog, Facebook and Twitter is well above average for a local business. She’s even claimed her Facebook Places page and is running a Facebook Deal, which is relatively rare.

She tried reading through Groupon’s merchant agreement, but it had too much legalese for her to understand.

Jessie says she tried to do research on other people’s experiences, but there wasn’t much on the Web. (Which is why she wrote the blog post.)

Since she wrote the post, she’s heard from other businesses who have had similar experiences. “What was the saddest part of it for me was that this had had happened to a lot of businesses but because no one had ever said anything we all just assumed (and myself included) we just assumed we were bad business people. That we just didn’t know what we were doing. If everyone loves Groupon so much, we must be wrong.” She estimates that she lost $10,000 in hard costs. Other businesses she heard from claim far greater losses.

The Groupon experience has soured her on similar forms of marketing. “Our most successful advertising is through Facebook. And that’s free. Even offering deals through Facebook, which is also free.”

She gets calls regularly from companies trying to sell her on marketing, including LivingSocial and Google Offers.

A Groupon rep called last week. She suggested that he Google “Posies Cafe.” The rep responded a few hours later with, “A simple Google search showed that I’m an idiot. I’m really sorry.”

The pizza place across the street from Posies has now run a second Groupon. Something worked for them in a way that didn’t work for Posies. I left a message for the owner. If she calls me back, I’ll share her story. And if you’re a merchant who has run a deal and wants to share your story, email me at dailydeals@agrawals.org.

When we first broke the news that iOS 5 would come with Twitter integration, I wasn’t thinking big enough. Based on the fairly vague (but credible) information I had, I figured it was mainly based around the Twitter Photos product which Twitter was rushing to get out in time. Turns out it goes much, much deeper. Apple has essentially baked a “Twitter Connect” into iOS 5. It’s something that all iOS apps will be able to easily use.

And they should. And they likely will.

It’s a massive win for Twitter. And a smart move by Apple. Social is not at their core, and they know it (*cough* Ping *cough*). So they partnered with a company that gets it. But what does it mean for the Twitter ecosystem? After days of dodging my questions, I finally got a chance to talk with Twitter’s head of platform, Ryan Sarver, about it this afternoon.

Apple gave a presentation at WWDC earlier today (which I wasn’t at — they don’t like my kind at such things) where they spelled out their vision for the Twitter integration with iOS. And this evening, Twitter is also holding an event at their headquarters in San Francisco to dive even deeper. Sarver expects it to be one of the largest events they’ve ever hosted.

“Overall the big thing for us is the combination of two big platforms,” Sarver told me. “And we’re complementary to each other. Twitter from day one has been a mobile-friendly company — that was a part of Jack’s [Dorsey] original vision. So to pair up with Apple on this is a great opportunity,” he continued, also pointing to the nice alignment of 200 million iOS devices with the 200 million Twitter accounts.

For developers, the value of this partnership breaks into two key things in Sarver’s mind. First, instant personalization. Any iOS app now has access to the Twitter connected identity and all its trappings and features. Second, there’s the distribution and user acquisition piece. Using the built-in Tweet Sheet feature in iOS 5 (essentially, a Tweet box that overlays on top of any app), any app can leverage Twitter’s network effects.

Sarver cited a recent stat the team behind Quora gave which said that every tweet going out from their service results in an average of 30 clicks back to Quora. Again, that’s on average for all links sent across the entire spectrum of Quora and Twitter users. “It’s an amazing amount of traffic,” Sarver noted, clearly suggesting that all iOS apps could potentially see the same type of thing.

But much of this was technically possible before. The difference now is that because it’s fully integrated into iOS 5, it will be more accessible to both developers and users. Sarver noted the simple hooks in place in the OS to add something like the Tweet Sheet. And for users, once they log in to the Twitter area in Settings in iOS, they’re basically all set for any app that uses the system.

Once you install an app with Twitter integration in iOS 5, you’ll see a single dialog box pop-up asking you if you’d like to connect the app to Twitter. This will look a lot like the pop-up that asks if you’d like an app to be able to use your location, Sarver said. Click, “OK” and you’re good to go. You’ll never be asked to enter a login/password or anything else. Nor will you see the pop-up box in that app ever again.

Imagine this in use for something like With, the latest app from Path. Because that app is built entirely around Twitter and iOS, this new integration is perfect for them. In the future, you’ll install the app, hit “OK” to enable Twitter integration, and you’re set.

If developers wish to go deeper, they can as well. iOS 5 has access to the entire Twitter API, Sarver noted. They essentially have a wrapper in place in the OS to allow developers to make calls to anything they want to use. And since it’s a wrapper (as opposed to iOS mirroring the API), whenever Twitter makes API additions or changes, iOS developers will be good to go as well.

So, now for the big question: where does this leave third-party client developers? After all, since the early days of the iPhone, they’ve been vital to the Twitter ecosystem.

There was a bit of a flare-up recently when Twitter revealed that they were moving developers from xAuth to OAuth usage in apps. The main driver behind this is that Twitter wants to have more control over the direct message feature of their service. This annoyed some developers because instead of a simple login/password sign-on, OAuth requires a user to go to Twitter’s site to authenticate an app.

But this is only for apps trying to access DMs. In other words, this mainly affects full clients. And the iOS/Twitter integration will be no different.

While Sarver declined to dive into xAuth/OAuth specifics in the iOS integration, he did say that there are multiple permission models. The one Apple is using for Twitter single sign-on in iOS 5 grants read/write access to Tweets and the ability to send DMs. But if an app wants to be able to read DMs, they will still need to authenticate on Twitter’s site with OAuth.

So yes, full Twitter clients made by third-parties are getting shafted a bit. Tweetbot, Seesmic, UberTwitter, Twitterrific, Echofon, etc.

But Sarver says this is not about screwing over those apps. “It honestly has nothing to do with making it harder for them,” he said. Instead, this authentication change is about protecting users. Sarver noted that very few apps should need access to DMs. And users probably don’t want apps like Angry Birds being able to read them when they don’t need to.

And of the 900,000 or so API tokens out there, and the 170,000 unique apps tweeting across the system, only hundreds of them are full clients that would want full DM support. “We want to work with them. But we need to think about protecting our users too,” Sarver said.

He did say that they’re thinking about a more elegant solution to the DM OAuth issue (which goes into effect at the end of this month). And if they can come up with something, they’d certainly be open to asking Apple to include it in a future version of iOS as well, Sarver said.

“We wanted to give guidance for the client-makers. We still allow them. They can still build clients. It’s not an area we’re turning off,” Sarver continued. At the same time, “if I were building a client, I would do it without DM access. But that’s just me,” he said.

At least that’s honest. And it reiterates his previous statements on Twitter’s increasingly complex (and conflicted) relationship with third-party client makers.

To lighten the mood, I asked about Twitter’s reliability. What if Twitter goes down, will iOS pop up a little Fail Whale notification, I wondered? Sarver laughed. “As always, developers need to code defensively,” he said. But he noted that a bigger problem may be the loss of cellular connectivity. And he said that Twitter’s reliability has been very stable lately, especially the API (which is true).

In terms of working more closely with other mobile players, Sarver said that Twitter brings a great and important social layer to mobile and they’d love to see it more places. But for now, this core iOS integration is going to be the huge emphasis for them.

And it goes both ways.

“I think this integration has the potential to be the second biggest referral for app growth behind the App Store,” Sarver said. ”I think the main point in my mind is that if you’re making an app for iOS and you’re not thinking about Twitter, you’re really missing an opportunity.”

There is no question in my mind that this integration is going to be huge for all parties involved. Well, except other iOS Twitter clients who, if not hurt by the DM issue, will be hurt by the fact that Twitter’s own app is promoted in the Twitter settings area of iOS.

More specifically, it seems impossible to overstate just how big of a win this is for Twitter. This is a deal that Facebook seemed destined for and would have further cemented their hold on social identity. Now their single sign-on solution looks very weak, by comparison. Twitter must be laughing at it, backed by 200 million devices, each with access to 400,000+ apps — many of which should soon feature Twitter fabric woven deep.

Here, at least, light blue beats dark blue.

At E3, we had the opportunity to talk with Martin Rae, who is the President of the Academy of Interactive Arts and Sciences, an industry group akin to the more well-known Academy that puts on the Oscars. The idea is the same, but the industry is younger, and although their conventions and yearly awards are less well-known, they are gaining popularity and are part of the growing movement towards integrating games with more mainstream media.

I was curious to see how Rae and the Academy think the industry is changing, since we’ve gone from a time of far more straightforward gaming (i.e. the well-crafted ride of Half-Life) to things like Foursquare and Farmville, which blend with real life. I also wanted to hear what he thought of the success of indie hits like Minecraft and Limbo. When games with teams numbering in the single digits can outsell $40 million titles, what does that say?

Check out the whole interview video inside.

Just in time for the impending Silicon Valley talent apocalypse, CodeEval, a platform that uses coding challenges to help recruiters find and filter the best programming candidates for the job, is launching today to the public.

CodeEval takes some of the guesswork that happens when a technical recruiter is not actually technical, pushing only candidates who get the challenges correct to its customers (and on to the next screening phase). “Think of it as a really efficient job board where all the candidates get prescreened,” says founder Jimmy John.

In the same space as CoderLoop, what CodeEval does differently than its competitors is that it allows employers to create their own programming challenges as well as providing extensive language support (10 different Open Source languages).

Right now companies and recruiters can use CodeEval with a the freemium model, with basic features being available for free and more extensive ones (like unlimited applications) now available to everyone in $199 a month and $399 a month packages.

CodeEval is San Francisco-based and part of the i/o Ventures incubator. John tells me that his future plans for the startup include further language and challenge automation support as well as one day expanding the platform to designer screening.

Google announced its new beta music service, “Google Music”, at I/O 2011 last month. The service, as it stands right now, is basically just cloud storage for all your music files that users can access through the web app. Users can stream their cloud-based music libraries to any device via a web browser. It even technically works on iOS, though the experience (especially on Safari) is pretty clunky. It’s also still missing discovery and purchasing power, though there’s no doubt that these features are on the way. After all, this is Google, and iTunes is heading to the iCloud.

In the meantime, Google is quietly unveiling the features to its music service, building a full-scale iTunes competitor piece-by-piece (or maybe hastily, it depends who you ask). And yesterday, Google Research officially congratulated itself for making some drastic improvements to “Instant Mix” — the playlist generator that is getting closer to being Google’s equivalent of iTunes Genius.

In essence, Instant Mix is a playlist generator that uses machine hearing to extract attributes from audio which can be used to answer pointed questions about songs, like, “Is this a song I can blog to?” or “Does it have blues guitar?” Not unlike Pandora’s Music Genome in intention, Instant Mix analyzes particular attributes of a song, using its algorithms to compare audio data to information pulled from the Web. Google has done some serious research in the emerging field of machine hearing, which endeavors to teach computers to better process information from audio sources, and it’s beginning to show.

With the combination of this audio analysis and web-crawled artist data, Instant Mix is able to compare songs that are similar in nature and work well together in a playlist. If you pick a quiet song while you’re working, the service will create a quiet playlist for you from your music library. For those not yet tapped into Music Beta, you can go to Google Research’s blog to check out a few sample playlists.

At I/O, Google’s Paul Joyce said that Instant Mix is meant to be one of the new music service’s “killer features”. But, is it? Erick Schonfeld and John Biggs demo-ed Google Music and Instant Mix a few weeks ago and found the service to be pretty hit-or-miss.

After Google Music’s launch, Echo Nest’s Paul Lamere did a deep dive into the comparisons between Instant Mix, iTunes Genius, and Echo Nest and found Instant Mix to be way behind the other two in terms of serving too many “WTFs” — songs that are glaringly dissimilar from the song you choose as the jumping off point for your playlist.

Google has since made several upgrades to the service, and it now works far better than it did at launch. It’s great to see how quickly Google was able to iron out the kinks. And, last I checked (iTunes disabled my account because someone hacked it), Genius takes awhile to incorporate newly downloaded songs into playlists, and whether or not Google Instant Mix intends to or not, it has been previously offering more of a “surprise” factor.

For some people, this will actually be a pleasure. If you have a large collection of music, it’s nice to be reminded of a song you may not have played in awhile. Of course, it would be nice for Google to be a little more open about whether this is something they intend, or whether it just shows that the feature has been relatively half-baked.

I’d like to see both iTunes and Google Music offering some user options in terms of how your playlist is created. One option could be more random, incorporating more surprise, while another might only create playlists of similar songs based on mood, and so on. What’s more, how about an evolving playlist mechanism that allows contextual updating, so that a playlist adjusts slightly to each new song, maybe pulling in different songs as it goes? Now that would be genius. Mensa level even.

It will be very interesting to see which combination of algorithms wins out. Does Google’s collaborative filtering mixed with acoustic similarity data offer a better alternative to iTunes’ collaborative filtering algorithm driven from purchase data acquired via the iTunes music store? Granted, these services are both essentially black box, so I’m glossing over a bit in terms of what I’m sure is more complicated, double secret mechanics on both ends, but it’s always interesting to see what combination of algorithms and data end up serving the best playlists — and recommendations, for that matter.

We can always use more transparency from algorithmic recommendation systems, so it’s good to see Google peeling back the curtain a bit on Instant Mix. Once discovery and purchasing hit Google Music, we may have one great service on our hands. Until then, I’d say Instant Mix is close, but not quite there.

The talent acquisitions continue for Facebook. The social network has just bought the software design company Sofa, we’ve learned.

The Amsterdam-based company was founded in 2006 and is known for its Mac applications and e-commerce products on the web. Notably they do all their own designs including art, icons, and interfaces for other high-profile clients (Mozilla, Tom Tom, etc). Not surprisingly, the team will be joining Facebook’s design team.

Below, the statement from Facebook’s Director of Design Kate Aronowitz:

We were just blown away by the Sofa team's work, from their Mac and web software to the interfaces and brand identities they created for clients. The more we got to know them, the more we realized that their passion for working in small teams and iterating to find solutions to hard problems matched our own culture. We can't wait for them to join the team.

Sofa has more on their own blog:

We expected to keep working at Sofa forever. But after Facebook first made contact, we were quickly convinced to join forces.

Facebook is full of talent and has a great culture. We feel challenged and at home at the same time, and can really get things done there. But equally important, we believe that at Facebook, we will be making a real difference to a lot of people's lives.

The Sofa team will be moving from Amsterdam to Palo Alto in the coming weeks – and we'll make sure to infuse some of our particular flavor of Dutch culture at Facebook.

Notably, two of Sofa’s key products, Kaleidoscope and Versions, (both Mac applications) were not a part of this acquisition. Both apps will continue to live on, but Sofa now has to find a new home for them, they say. Two other products, Checkout and Enstore, will also live on thanks to the joint partnerships they were created under. Sofa is working on their transition out of those products now as well.

Terms of the deal are not being disclosed. But again, this is a pure talent acquisition for Facebook. And we’ve heard the main emphasis behind it is to continue to boost their product design talent. Aronowitz herself is a part of that. Before joining Facebook, she was the Director of Design for LinkedIn.

Add to that Rasmus Andersson, Ji Lee, and Nicholas Felton (who came over in the Daytum deal), and you have a very impressive team of recently acquired design talent.

Big news today for Embedly, the service that makes it easy to embed content from nearly any site on the web. Today the company is announcing that it’s raised another $450,000 in a round that includes Howard Lindzon, Social Leverage, Venture 51, Adam Schwartz and follow-on investments from Betaworks and Chris Sacca, who participated in Embedly’s $250,000 round last August. Schwartz will be joining the company’s board.

But funding isn’t all Embedly has up its sleeves: it’s also announcing some changes to the way its APIs work. Namely, it’s combining its existing services into a single API to help reduce developer confusion.

Embedly has offered both a free standard API — which can be used to embed content from sites like YouTube, Rdio, and Twitter — and then a second, Pro API that can glean content from any site and generate nice-looking embeds (it’s like the story creator used by Facebook, but anyone can integrate it). Before now these have been two separate APIs, and now they’re be combined into one (you can sign up for the API here).

Finally, Embedly is sharing some new stats. The service is now used by 1,200 sites and services, including Hunch, Bit.ly, StockTwits, and Yammer (they note that Lindzon and Schwartz both actually use Embedly for their own apps). Across all of these sites, Embedly serves 2 billion impressions per month for its embeds. To put that in perspective, they were serving around 4 million URLs per month in July 2010.

Earlier today I was invited to do a quick guest spot on CNBC’s Power Lunch, where we discussed a question that’s fundamentally important to the future of Silicon Valley: Who is cooler, Google or Apple?

Okay, so the topic was a bit goofy. But that doesn’t mean there’s nothing to it: after all, public perception can play a role in how quickly products from each company get picked up by new users, which in turn can impact their bottom lines.

Tune in to hear my thoughts. Because if there’s a guy who knows cool, it’s me. Oh, and there’s an interview with the folks who made the awesome Les Paul Google Doodle gracing the search engine’s home page today. You can watch that one here:

AdMeld, an advertising optimization platform for publishers, has been acquired by Google for around $400 million according to multiple sources. The company, which launched in 2007, has raised just $30 million in venture capital from Foundry Group, Spark Capital, Norwest Venture Partners and Time Warner Investments.

This is a sweet comeback for CEO Michael Barrett. As I noted in our first post about AdMeld in 2009, Barrett was fired from News Corp. in 2008 when the division that owned MySpace failed to meet a $1 billion revenue target. Most sources we spoke with at the time said he was the fall guy for an unrealistic revenue target to begin with, set by News Corp.’s Rupert Murdoch in a previous earnings call.

You know what they say about imitation being the most sincere form of flattery? Well sometimes, like in the case of Groupon and its many imitators competitors, this type of flattery is also a huge business risk. The latest victim to get bombarded by an “attack of the clones”? Billion dollar darling Airbnb.

Obviously feeling threatened by its recent crop of competitors, the company sent out an email yesterday to its over 100K hosts, warning them about "impostor websites" like 9flats,  Myfriendshotel, Wimdu and Airizu.

The email, titled “Airbnb Community News,” starts out with the usual PR milestones (in 181 countries and 13,000 cities!) and then it gets down to business:

You've Informed Us about Imposter Websites

A new type of scam has been brought to our attention: Airbnb clones posing as competition. We've discovered that these scam artists have a history of copying a website, aggressively poaching from their community, then attempting to sell the company back to the original.

After receiving emails from many of you who are upset with these tactics, it's time to address this issue as a community. Hosts are reporting these issues about the clone sites so far:

• They falsely claim to be affiliated with Airbnb, or be the "international version" of Airbnb.
• They claim that they are part of Ebay and/or Groupon. We've confirmed that this is not the case.
• Their employees pretend to be Airbnb travelers in order to give you a sales pitch in your home.
• They are duplicating personal profiles, descriptions, and photos of your Airbnb listing without your permission.

Help us protect our community by joining other hosts in alerting us whenever you see questionable activity from users.

• Use the new flagging feature next to each message to report questionable behavior
• Notify us directly of clone activity at detectives@airbnb.com

While the fact that the co-founders point the hosts to a “detectives@airbnb.com” email address is cute, don't let that distract you from the grave point here. The biggest competitive threat to Airbnb currently is the Samwer-backed Wimdu (and its Chinese sister Airizu), clones that use the classy ”Concept featured on CNN and the New York Times” on their splash pages.

Why is Wimdu and its Chinese subsidiary such a threat? Well Wimdu and Airizu were created by the German Samwer brothers, prior Facebook investors whose modus operandi is creating European clones of popular American Internet services. The Samwers most profitably sold their eBay clone Alando.de to eBay in 1999 and their Groupon clone CityDeal to Groupon itself for around €100 million in 2010.

The Airbnb email does everything but call out the Samwer brothers by name for their questionable cut and paste innovation tactics, “these scam artists have a history of copying a website, aggressively poaching from their community, then attempting to sell the company back to the original” and “they claim that they are part of Ebay and/or Groupon.” The site runner at the bottom of Wimdu brags, “Will be featured soon on Groupon.” Heh.

While I haven't heard anything about a Groupon/Wimdu partnership, the two services still have a connection post-CityDeal acquisition. Because they got in so early, the Samwers currently own around 10% of Groupon's voting shares and have a cushy international “consulting arrangement” with the daily deals site (and, we’re hearing, a mixed track record.)

Airbnb has even more reason to be threatened: It just acquired German clone Acceleo (with its recent $100 million windfall perhaps?) signaling its first serious move towards international expansion. It's no surprise that Airbnb acquired a clone, and then one week later sent out a mass email warning its community about other clones.

With a big funding round ready to close and “now we have to take this seriously” valuation, Airbnb is following Groupon’s lead and investing for growth oversees. Hopefully it’ll have a better time of it than Groupon, who lost $170.6 million internationally last year (versus $10.4 million in the US) — Proving that the clone wars have more significant casualties then terrible blog headlines.

Update: Airbnb representative Christopher Lukezic responds, in an email …

“At Airbnb, we take our community’s safety and privacy extremely seriously – it is and always will be our first priority. We feel it is our responsibility to alert our community of these types of practices, especially after being contacted by numerous Airbnb hosts who expressed distress after employees of these clones booked reservations under false pretenses and made them extremely uncomfortable.

We've had 572 reported cases of these competitors' employees soliciting Airbnb hosts in their homes and, in many cases, going so far as to scrape host's personal profiles and listing their homes to populate their site without the hosts’ knowledge or consent.

We embrace competition in the marketplace, and will – as always – use our creative approach to problem solving and innovation as our competitive advantages.”

Online movie clips site Movieclips.com has raised $6 million out of a $7 million round, according to a recent SEC filing. The startup has previously raised $3 million. We’ve confirmed the new funding with the company.

Movieclips.com, which launched in 2009, offers a clip engine with over 14,000 different clips from 1,400 titles from the libraries of 20th Century Fox, MGM, Paramount, Sony Pictures, Universal Pictures and Warner Bros. Pictures. Last year, the startup also launched a new product, called Movieclips Mashups, at TechCrunch Disrupt in New York, which allows anyone to make montages of two minutes clips.

Along with the studio partnerships (which is half the battle for licensing movie content), the company has also developed proprietary technology that assigns up to 1,000 points of data to every scene, making it super easy to find scenes by actor, film title, dialogue snippet, mood, director, genre, etc.

The site also launched a specialized video player and features an API developers can use to integrate Movieclips on other sites; AOL's Moviefone actually uses the technology on its platform.