Short Version:

It's been a long time since Sony released a smartphone in the U.S. market that had a chance of hitting it off with customers — too many of their recent releases have either been meant for niche markets (the Xperia Play 4G) or were expensive and unlocked (nearly all of these things).

That said, they’re looking to give it another go with the new Xperia ion, and it certainly looks like it could go all the way. It’s the company’s first LTE-enabled phone to land in the United States, it packs a much touted camera, and it’ll only set AT&T customers back $99. What’s not to like?

Read on for all the juicy details.

Features:

• 4.6-inch 720p Reality Display and Mobile Bravia engine
• Runs Android 2.3.7 Gingerbread
• 1.5GHz dual-core Snapdragon S3 processor
• 1GB of RAM
• 16GB of onboard storage, can take up to an additional 32GB microSD card
• NFC
• 12MP rear-facing camera (records video in 1080p) with Exmor R sensor
• 1.3MP front-facing camera
• Runs on AT&T’s 4G LTE and HSPA+ networks
• MSRP: $99 with a two-year contract, available June 24

Pros:

• Rock-solid camera
• Impressive 4.6-inch display
• Aggressive price point

Cons:

• Why does this thing run Gingerbread?
• Finicky capacitive Android buttons
• Peculiar button placement on the Ion’s side puts form ahead of function

Long Version

Hardware & Design:

Looking at the Ion dead-on doesn't leave you with much of an impression — the Ion's face is clad in black, and is dominated by the 4.6-inch Reality Display. A terribly small speaker grill is nestled right along the device's top edge, and a row of small capacitive Android buttons (more on them later) sit just above the Sony logo on the Ion’s chin.

In short, it's not much of a looker from the front, and it lacks the quirky characteristics (think the color palette of the Xperia U and the nifty transparent sliver of the Xperia P) that helped some of its recent predecessors stand out in a crowd. Lack of style isn't my only issue with the device's face; that row of capacitive buttons took quite a bit of getting used to.

I'm not sure if it's just because I have weird thumbs or what, but it can be a real struggle at times to register a touch on those buttons. They're rather small (which doesn't help things at all), and it often takes a more concerted press than one would expect to make things work the way they should. It may seem like a minor thing to get worked up over, but the effect is cumulative — having to touch the same button two or three times to make the device bend to my will for a few days isn't too taxing, but it could make for some real headaches for people who actually take a chance and buy the thing.

Things get a little better upon turning the device over, which reveals a similarly understated design. Strangely though, I think this is where the Ion actually shines a bit. A handsome dark metal backplate (that's sadly prone to attracting smudges) takes up most of the Ion's rear end and is bound on the top and bottom by a pair of removable plastic caps that hide both a microSD and a micro-SIM slot. The only bit of branding back there is the iconic green Sony orb plopped right above the Xperia logo, and I frankly like it that way.

The other thing to note about the Xperia's back is that it gently curves to fit your hand, something that helps hide its 11.68mm waistline. That curve coupled with that metallic backplate imbues the Ion with a sturdy, comforting feel in spite of the fact that it weighs in at only 4.9 ounces. That said, I take some issue with the way Sony crafted the sides of the device — the edges were designed in such a way that the power, volume, and camera buttons are mounted at an angle. The buttons themselves aren't any harder to physically press, but their angled placement means they're not quite where your fingers expect them to be.

This is especially prominent when trying to use the two-stage camera shutter button — my finger naturally gravitates to the highest point on the edge of the device, which often tricks me into applying pressure exactly where the shutter button isn't. Again, it may seem like a minor thing to get worked up over (and users may get used to it in time even if I didn't), but it's annoying to see how Sony's sense of aesthetics have made it slightly more difficult to use the phone the way I want to.

Software:

Gingerbread, I wish Sony knew how to quit you.

Perhaps I'm a bit jaded — after having used an Ice Cream Sandwich device as my daily driver for the past few months, going back to a lightly-tweaked take on Android 2.3.7 Gingerbread for nearly a week didn't seem like a tempting proposition. Sony maintains that the device will gets its Ice Cream Sandwich update in due course (the Xperia S just got its own ICS update a few days ago), but really — it's the middle of 2012 and Ice Cream Sandwich first hit the scene toward the end of last year.

It may just be one of the pitfalls that needs to be dealt with when mid-range devices are concerned, but I can't quite shake the feeling that a solid handset isn't quite living up to its potential because of Sony's decision on this front.

Anyway, I'm not going to get too caught up in pondering the sort of device the Ion might have been, and Sony has done their part to try and freshen up this stale cookie. Longtime readers may know that I'm no great fan of what manufacturers do to the stock Android experience, but Sony thankfully hasn't gone too crazy with their custom UI — save for a few particularly heinous widgets (Timescape and the large, love-em-or-hate-em Tools widgets in particular) I actually found myself enjoying some of what Sony came up with.

The app launcher in particular seemed nice and clean, with apps being arranged on multiple horizontal scrolling pages a la Ice Cream Sandwich. What made the whole thing even better was the fact that Sony didn't completely load the device up with bloatware or plugs for their myriad media services — Sony only preloaded a few apps and at least some of them are rather useful.

Sony's LiveWare manager app for instance is a scaled down version of Tasker, which prompts user-defined apps to spring to life when accessories like headphones or power cables are connected to the Ion. And just like clockwork, Sony's Timescape social app makes yet another appearance here. The app pulls in tweets, Foursquare check-ins, Facebook status updates, and LinkedIn updates into a vertical stream of social information that's at the same time visually striking and super smooth to scroll through. Just do yourself a favor and stay away from the fugly widget.

Of course, since AT&T is selling this thing, you can expect the full complement of carrier bloatware apps to round out the package. All the usual suspects are present and accounted for (I'm looking at you especially, Yellow Pages), but to my great relief, tapping a small grid icon in the bottom right corner of the app launcher lets you delete most of them quickly and without prejudice. Kudos to Sony for making that process dead-simple.

Camera:

One of the Ion's biggest claims to fame is its 12-megapixel rear-facing camera, which makes the device second only to HTC's Titan II for the title of “beefiest cameraphone” on AT&T's store shelves. Thankfully, I'm pleased to report that Sony's claims aren't just marketing fluff — this is one of the nicer smartphone cameras I've used in quite a while.

But first, let's address some of the mechanical bits. Holding down the two-stage shutter button while the phone is locked lets users jump straight into the camera app while the device is locked, which sounds great except for one thing — by default the camera app is set to snap a picture as soon as someone uses the shutter button to unlock it. That's right, it just takes a picture as soon as the phone wakes up, which means that you'll have no clue how well you've framed the shot or if the camera focused on the right subject until it's too late.

Thankfully all that requires is a quick settings tweak, and the rest of the camera experience is quite solid. The process of auto-focusing and actually snapping a photo was awfully quick — just under three seconds to focus, shoot, and return to standby mode. Once inside the camera app proper, users can select from a number of different scene modes (though the default scene recognition mode is smart enough to accurately handle most situations) and shoot panoramas to boot, but there isn't much in the way of manual controls outside exposure and metering settings.

Of course, all that would mean nothing if the photos didn't turn out well. Fortunately, colors were bright and vibrant, though perhaps to the point of being slightly over-saturated at times (more on that in a moment). Low-light performance wasn't too shabby either, but the Ion's Exmor R sensor isn't a miracle worker — there was still quite a bit of grain present in shots taken in darker locales. C'est la vie.

The Ion can also record 1080p video at 30fps, and results were generally passable — test recordings generally displayed plenty of detail, and additional features like image stabilization and the ability to light up the LED flash came in quite handy. The process isn’t entirely flawless though, as the camera tends to take a few extra moments getting into focus when you’re ready to begin shooting and the image stabilization can occasionally be hit or miss.

Now, about that over-saturation issue I was talking about — it's not entirely the camera's fault. It's worth noting that the images look extra vivid on the device itself thanks in part to Sony's use of their Mobile Bravia engine, and that their level of vibrance will vary once you move those photos onto other devices. And speaking of which…

Display:

Since the Ion is the first Sony smartphone I've worked with in a while, I wasn't quite sure what to expect from its 4.6-inch, 720p Reality Display. As such, seeing the bright, crisp display come to life for the first time was actually a bit of a surprise — sure, it lacks the deep blacks seen on AMOLED displays but the LCD panel Sony's using is no slouch (especially since at 342 ppi it beats the Galaxy S III and the iPhone 4S at the pixel density game). The display's viewing angles are actually quite good, though prepare for the colors to wash out a bit the further you move away from dead center.

The screen's performance in daylight seemed respectable at best. Since Sony doesn't include an option to automatically set screen brightness, you'll have to manage that yourself should you decide to venture into the outside world, and the screen tends to get overwhelmed unless brightness is cranked up full blast.

As I've mentioned before, Sony's Mobile Bravia engine plays a significant role in how images and video appear on that sizable screen. With the Bravia option on (note: it's on by default) colors were vibrant and vivid to the point of being slightly lurid at times — this was especially apparent in one of my test videos, where the Xperia ion tended to make a stage lit mostly in blue take on a notably purple cast.

It wasn't necessarily a bad change (I actually think it gave the video some cinematic flair), but not everyone may enjoy the effects engine has. In addition to pumping up colors, the Bravia engine also sharpens the image, leading to the double-edged sword of slightly crisper images and video versus the potential annoyance of seeing more jaggies. Occasionally nuclear colors aside, I think leaving the Bravia engine on is generally a plus; it adds a bit of pop to the viewing experience, and it's simple enough to shut down if it gets to be too much.

For a closer look at the difference, take a look at this image — the left side is a screenshot of a photo I took with the Bravia Engine off, and the right is a screenshot of same image with the Bravia Engine on (click to enlarge).

Performance:

The Ion's spec sheet would've been considered top-tier just last year, but my how times have changed since then. We've since entered the age of the quad-core chipset (even though most of them don't end up on U.S. soil), but the 1.5GHz dual-core Snapdragon S3 processor nestled inside the Ion’s curved frame still has plenty of game. The device seemed plenty responsive when put to the usual gamut of daily tasks — swiping between menus was buttery smooth, as was pulling down the notification drawer and scrolling through my innumerable contacts. Similarly, I had no trouble at all watching Top Gear reruns on Netflix or building obtuse structures in Minecraft Pocket Edition.

If you want to break things down numerically, the Ion managed to squeeze out an average Quadrant score of 2872, which roundly put to shame my trusty Galaxy Nexus (average: 1812). It's still a long ways off from HTC’s ostensibly mid-range One S (generally around 4-5000 depending on the circumstances), but the Ion certainly has enough horsepower to be a daily driver for all but the most demanding users.

In terms of network performance, I'm loath to admit that I couldn't latch onto an LTE signal in my particular corner of New Jersey (a problem that I imagine isn't unique to me considering AT&T's LTE network is only live in 41 cities), but I managed to pull down an average of 7.3 Mbps down and 1.3 Mbps up. It doesn’t sound great, but the Ion actually performed slightly ahead of other AT&T devices — namely an iPhone 4S and an unlocked Galaxy Nexus — I tested alongside it.

Though one of the Xperia Ion's main draws is going to be that nifty camera, Sony is positioning it as more than just a media creator — it's also a media hub. As you might expect from a company that launched the working group behind it, the Ion is DLNA certified, and it was a snap to get it linked up with my DLNA-compatible LG smart television and media server. From there, I was able to fire up the included Connected Devices app and sling my media onto the big screen. Streaming videos from my media server proved to be a breeze too, and it didn't take long before Plex was serving up (dorky) content to the Ion.

If you've got a micro-HDMI-to-HDMI cable handy, you can also connect the Ion directly to your television at which point something very interesting happens. Once the connection is in place, the Xperia swaps its stock launcher for an upscaled version meant to be displayed on a television, allowing users to fire up apps and pore through media on the phone.

Provided you’ve got an HDMI-CEC (or SIMPLINK, or Viera Link, or whatever) compatible television, you’ll also be able to control the Ion with your television remote. The ability to take any compatible television and effectively turn it into a smart television set certainly has its appeal, and while it’s gimmicky and it’s fun, it’s hardly the kind of thing I’d want to use for any extended period of time.

When it comes to sound, the Ion is actually sort of a mixed bag. Call quality was generally very clear, but even with the volume cranked all the way up, I still had trouble hearing the person on the other end of the line. The same goes for the Ion's main rear-mounted speaker — for a device that's so centered around media, you would think that Sony would have bothered to pop a better speaker in the thing. Even at maximum volume (which, again, doesn't seem that loud) the speaker produces sound with muddy middles and almost non-existent lows. I’ll admit that I can’t be too surprised as it’s relatively rare to get an unabashedly good speaker in a smartphone, but I was a tad disappointed nonetheless.

Battery:

For better or worse (I usually lean toward the latter), Sony has opted to seal the Ion’s 1900 mAh battery under that black metallic plate I’m so fond of. Though the road warriors among you may miss the ability to swap out spare batteries as needed, the Ion does a fine job of chugging along throughout the day.

Since I started using the Ion as my go-to phone earlier this week, I’ve averaged about eight to nine hours of consistent use each day — checking my email, firing off text messages, watching the same clip of a tap dancing Broadway starlet over and and over — you know, my usual routine. If you're not the sort to check your phone at every possible moment, you can expect to squeeze closer to 13 hours out of the thing before needing to juice up again.

If you’re planning to binge on some video content though, expect that figure to plummet to roughly six hours, and that’s if you’re mighty careful with all the rest of your settings.

Head-To-Head With The HTC One S And iPhone 4S:

Conclusion:

For all of the Ion's foibles (and there are quite a few), there's still plenty to like here. The Xperia Ion definitely leans to the more premium end of the mid-range spectrum, and it tries valiantly to punch above its weight with features like its solid camera, media functionality, and great display. Its price tag too makes a pretty compelling statement — there are far worse things you could get for $99.

Ah, but the real question is whether or not it's worth your money. I was originally going to say that if you're in the position where you really can't justify spending an extra $100 on a top-of-the-line smartphone, then the Ion will do in a pinch. Now that I've thought about it a bit more, that's selling the Ion a bit short.

Despite how harsh I may have been with some of my comments, I really do think the Ion is a good phone. The problem here is that like with many mid-range phones, the Ion straddles that very fine line between “good” and “great,” and it doesn't seem to have quite enough oomph to push it over the edge. Strangely enough, this may well change down the line — with a few minor tweaks and perhaps a helping of Ice Cream Sandwich, the Xperia Ion may eventually grow to become a must-buy, but it’s not quite there yet.

Facebook has created a new feature that lets users find friends and potential friends nearby. Currently Initially called “Friendshake” and also accessible through a URL that is the abbreviation of “find friends nearby” (http://fb.com/ffn), it’s another step in Facebook furthering its reach into mobile, and creating services to meet new people — rather than building up more connectivity with the ones you already know. And, in keeping with Facebook’s emphasis on being as ubiquitous as possible, for now it’s not being delivered in a native app, but via the mobile web. Update: it’s accessible via Facebook’s mobile apps, too (see below the break for more details, including comments from the developer).

The service comes a little under two months after Facebook announced the acquisition of Glancee, a mobile app that helps users discover people near them with similar interests, whose three founders have now joined Facebook and closed down their app. It is not clear if Friendshake has been created out of that acquisition, or if it has been developed along an altogether different thread — or how the functions of the two may eventually dovetail.

We first heard about the service from developer Roger Pincombe, who himself got the info from a Facebook developer at the Angelhack event going on this weekend: Facebook is a title sponsor, and at the San Francisco event (Angelhack’s taking place also in Seattle, Boston and NYC), and one of its engineers was on site showing off how the app worked with developers. The feature has not been officially launched, but it is live and visible for those seeking it out.

“He specifically said I should tell other people about it,” he told me in an email. “I (semi-jokingly) asked ‘even TechCrunch?’ and he said sure.” So here we are.

For now, the app works like this. Users have to be logged into Facebook and also into the Friendshake URL, and then others who are near can pick each other up. You can see both your own friends, as well as those you may not know.

For now it looks like the main purpose is to quickly add people who you meet at a specific event — like a hackathon, or a bar.

As Pincombe points out, “Before, you would need to tell them your name, probably spell it for them, and then depending on how common your name is, you’d have to tell them which of the results is actually you.  This makes it 2 taps if you save a bookmark.”

Update: Since publishing, the original FB engineer, Ryan Patterson, responded in the comments below, confirming what we’ve written here (original post follows after his quote):

I built Find Friends Nearby with another engineer for a hackathon project. While it was originally called ‘Friendshake’, we settled on ‘Find Friends Nearby’ for launch (the URL was a little bit of a homage to the previous iteration).

For me, the ideal use case for this product is the one where when you’re out with a group of people whom you’ve recently met and want to stay in contact with. Facebook search might be effective, or sharing your vanity addresses or business cards, but this tool provides a really easy way to exchange contact information with multiple people with minimal friction.

And there is, of course, the potential of how this basic service could be further developed: finding people who are friends of friends, or who have flagged similar interests in their social graphs; and it potentially could be something to incorporate as a push service, rather than one you have to be activate to use every time.

All of these features could make Friendshake into a Highlight killer — which can already do all of the above — and a lot more like Glancee, too.

But as with so many of these kinds of features, you have to wonder how and if it will be abused — random people you would like to shake off suddenly start asking you to friend them on Facebook, for example.

However, it appears that, even if Friendshake is already publicly available, this is still a work in progress being tested out, and so we may see more controls getting put in place, in addition to the fact that you have to activate the service to use it. “To my knowledge, the few people here at AngelHack that the Facebook employee tested it with are the only people to know about it yet,” said Pincombe.

Before this, Facebook already had an ambient location feature, but it worked somewhat less in real time, and it is more about friends you have rather than making new ones. Facebook’s Check-In feature, when enabled, lets users see contacts who have visited the same places they have, or who has checked-in to a Facebook event.

Update: Just as I was publishing this article, I noticed two people appear on my own Friendshake feed. How did they find out about the app, I wondered, and would they respond to my friend requests? I’ve contacted them, and Facebook, to try to find out more and will update as I learn it.

Update 2: It looks like the Find Friends Nearby option is now available on Facebook’s iOS and Android apps, too. It’s here: menu > apps > find friends > other tools > Find Friends Nearby, which takes you to a page that looks exactly like the mobile web page.

Editor's note: This guest post was written by Dave Chase, the CEO of Avado.com, a patient portal & relationship management company that was a TechCrunch Disrupt finalist. Previously he was a management consultant for Accenture's healthcare practice and founder of Microsoft's Health platform business. He's part of the White House Roundtable on Patient Access. You can follow him on Twitter @chasedave.

When I'm not writing for TechCrunch, my "day job" is working with healthcare providers the disruptive innovators who are reinventing healthcare and slaying the healthcare cost beast as a byproduct. In some cases, these are entrepreneurs. In most other cases, they are pioneers within existing healthcare providers fighting to make changes within otherwise slow-moving organizations.

Despite this being the month that the Supreme Court is supposed to rule on the Obamacare’s constitutionality, it is striking how the SCOTUS ruling rarely that comes up in discussions with healthcare providers. A HealthLeaders Media piece by Philip Betbeze described how "Disruptive Healthcare Innovations Trump SCOTUS Worries"  when he asked senior executives about their viewpoint regarding upcoming the Supreme Court decision.

But when you ask one question, you might get an interesting answer about something else entirely. That's the way my sources for this off-the-record conversation surprised me. They agreed they are much more concerned about disruptive innovation than what nine people in black robes are going to say at an indeterminate date sometime this month. The roundtables, set up for me by the good folks at Premier Inc., which is holding its annual "Breakthroughs" conference here in Nashville this week, revealed that these leaders fear less what the government may do in response to whatever decision the Court makes, and more what nontraditional competitors may do to their resource and capital-heavy healthcare delivery systems.

They are rightfully concerned. The array of disruptive innovation activity underway or in the works is encouraging. Much of this is taking place in what I call “DIY Health Reform” at the behest of commercial plans and employers. Even the items that were key parts of the Obamacare such as Accountable Care Organizations (ACO) are surpassed by private sector efforts. For example, more than 70% of the newly formed ACOs are driven solely by private sector efforts as opposed to government funded. The following are just a few examples of disruptive innovation in the DIY Health Reform movement:

• Venture-backed Iora Health has bent the proverbial healthcare cost curve working with some of the most challenging patients (i.e., costly) for casinos and other organizations as highlighted in  DIY Health Reform from Massachusetts to Alaska. Working with employers or unions, they do the opposite of skimming the cream by identifying those that are highest cost and inviting them into a special program.
• DaVita (DVA) just announced a $4.4 Billion acquisition that is going to blow a hole in a facet of health insurance. The ripple effects of this big move are large within physician groups — a cohort that is particularly well positioned to offer fee-for-value (as opposed to strict fee-for-service) models that employers, unions, the government and individuals are pushing for.
• An array of startup organizations best described as "concierge medicine for the masses" backed by some of the most successful entrepreneurs of the last 15 years such as Jeff Bezos, Michael Dell and Rich Barton offer a service that is reducing healthcare costs 40% or more. They have proposed how their service could also be used to balance state budgets. See The Marcus Welby/Steve Jobs Solution to the Medicaid-driven State & County Budget Crisis for more.

[Disclosure: Some of the companies described in the linked articles are customers of my patient relationship management software company, Avado, which is why I have a view into their business results.]

When an entire health system shifts from a reactive to a proactive model as has been the case with the highly successful examples cited above, the backbone of that system is primary care, not hospitals.  For example, Denmark went from 157 to just 21 hospitals as detailed in "Primary Care Spring" unleashed by IBM. It's a more geographically concentrated country so the reduction won't be as dramatic in the U.S., however it's not inconceivable that we might have half the number of hospitals a decade from now.

As Philip Betbeze stated, "In their day-to-day-lives, it [the SCOTUS decision] largely won't affect the 180-degree shift they're making in reimbursement philosophy. For most systems, those changes are taking place largely at the behest of commercial plans and local employers." The fee-for-value train has left the station. Woe is the health system that hasn't made aggressive moves to reinvent themselves.

Unfortunately, some view "reinventing" themselves as simply automating the broken processes that have created the mess we are in today. The established health system leaders are rightfully concerned as the disruptive innovators aren't shackled by old processes. Rather, they are building from the ground up that recognize value, not activity, as the core focus. While the federal reform was a catalyst, the DIY health reform movement has enough momentum regardless of the outcome from the 9 black robed folks in DC.

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Editor's Note: Nir Eyal is a Lecturer in Marketing at the Stanford Graduate School of Business and blogs about the intersection of psychology, technology, and business at NirAndFar.com. Follow him on Twitter @nireyal and see his previous Techcrunch posts here.

Right now, someone is tinkering with a billion dollar secret — they just don't know it yet. "What people aren't telling you," Peter Thiel taught his class at Stanford, "can very often give you great insight as to where you should be directing your attention."

Secrets people can't or don't want to divulge are a common thread behind Thiel’s most lucrative investments such as Facebook and LinkedIn, as well as several other breakout companies of the past decade. The kinds of truths Thiel discusses — the kinds that create billion dollar businesses in just a few years — are not held exclusively by those with deep corporate pockets. In fact, the person most likely to build the next great tech business will likely be a scrappy entrepreneur with a big dream, a sharp mind, and a valuable secret.

Where are the Secrets?

According to Thiel, there are two types of secrets: those about nature and those about people. Thiel dismisses the former as less interesting because they are less practical. “No one really cares about superstring theory. It wouldn't really change our daily lives if it turned out to be true.”

But secrets about people have immediately practical applications. I believe secrets about human behavior, which provide insights into the way people act even though they can’t tell you why, are levers for creating user habits and competitive advantage. These kinds of secrets are also relatively cheap to uncover but can be the basis of massive enterprises.

Once, only large companies had the resources to discover monetizable secrets. Throughout the twentieth century, companies like GE, Dupont, Chrysler, and IBM specialized in discovering the optimal form of physical goods and their insights lay largely hidden in the discipline of industrial design. For these companies, uncovering secrets required massive R&D investment to find the best way to create a better, cheaper, or faster product.

But today, as software continues to eat the world, service industries are being upended by upstarts. A new crop of companies like AirBnB, DropBox, and Square exploits secrets gleaned not from industrial design, but from interaction and systems design. These companies remedy old problems by designing interfaces to create new user behaviors.

Change the Interface, Change the World

Whenever a massive change occurs in the way people interact with technology, expect to find plenty of secrets ripe for harvesting. Changes in interface suddenly make all sorts of behaviors easier. Subsequently, when the effort required to accomplish an action decreases, usage tends to explode.

A long history of technology businesses made their fortunes discovering behavioral secrets made visible because of a change in the interface. Apple and Microsoft succeeded by turning DOS terminals into graphical user interfaces accessible by mainstream consumers. Google simplified the search interface, as compared to those of ad-heavy and difficult-to-use competitors like Yahoo. Facebook and Twitter turned new behavioral insights into interfaces that simplified social interactions online. In each case, a new interface made an action easier and uncovered surprising truths about the way users behave.

More recently, Instagram and Pinterest offer examples of companies which capitalized upon behavioral insights brought about from changes in interface. Pinterest’s ability to create a rich canvas of images — utilizing what was then cutting-edge interface changes — revealed new insights about the addictive nature of an online catalog. For Instagram, the interface change was cameras integrated into smart phones. Instagram discovered that its low-tech filters made relatively poor quality photos taken on phones look great. Suddenly taking good pictures on your phone was easier and Instagram used its newly discovered insights to recruit an army of rabidly snapping users. With both Pinterest and Instagram, tiny teams generated huge value, not by cracking hard technical challenges, but by solving interaction problems.

From Discovery to Domination

Along with capitalizing on behavioral insights discovered from a change in interface, Instagram and Pinterest also shared another key attribute. They both grew to stratospheric valuations because they came to dominate their respective markets through a network effect. Defined as a system where each additional user on the network increases the value to all the other users, the network effect is a common trait among record breaking tech business of the past decade.

But where the titans of twentieth century industry could build competitive advantage in a number of ways — owning intellectual property, building a brand, deriving scale cost advantages, and the network effect, for example — most young companies today can only afford the last option. The nature of interface-driven innovation is that many of the old competitive advantages don't work. The byproduct of the massive investment required to building cars and turbines was an increasing market dominance with each sale. Each closed deal spread the fixed costs of protecting patents, building a brand, and manufacturing equipment, thereby making it harder for new entrants to compete.

But today, consumer web startups have no such advantages. They must quickly create habitual users and build a network effect before their competitors do; it's their only hope. Software production doesn't offer scale cost advantages, the patent system is a mess startups can't afford to navigate, and spending on branding prematurely is foolish. Only after a network effect business has secured its place in users' everyday lives does it make sense to build its brand through advertising. Twitter's recent foray into television commercials promoting its NASCAR partnership is a good example.

Though we're living through an age when new insights about user behavior abound, the methods for building a long-term business advantage has narrowed. The kind of secrets that build big businesses today must support a plan to build a network effect business. Without a network effect strategy, secrets don't stay valuable for long.

Thank you to Jules Maltz, Jess Bachman, Max Ogles for reading early versions of this article
Photo Credit: byJess.net and NirAndFar.com

Editor’s note: Peter Vogel is co-founder of Plink, an online-to-offline loyalty program that rewards members for dining and shopping at their favorite national restaurants and offline stores. Reach him via email at peter@plink.com or follow him on Twitter @pvogel.

In a surprising move this week, with just a short post on their Developer Blog, Facebook has ended their three-year experi ment with the virtual currency of Facebook Credits.

Credits will be phased out by the end of the year and users will simply have a Facebook account with a balance measured in Dollars in the U.S., or whatever currency is native to a country. Facebook's new member accounts will function similarly to an iTunes account: a user adds a credit card to their account, digital goods can be purchased and immediately charged to the card on file, or can be drawn from stored value in that account.  If you are given a Facebook gift card, in card or digital form, you would add that reward code to your account and that value would be stored until you use it – just like an iTunes gift card is added to your account and stored until spent.

But does this change imply that Facebook is less committed to becoming a dominant force in the Payments space? Facebook did generate 15 percent of their 2011 revenue from Payments, primarily from Facebook Credits used in social games.

Absolutely not!

I predicted that Facebook's revenue from Payments will double every year for the next five years and still stand by that prediction – Credits or no Credits. This is not a significant change in Facebook's strategy, just a different name for the currency being exchanged; instead of 'Credits' which Facebook invented, users will make purchases in their native currency – for example, Dollars in the U.S.

We still expect media providers like Netflix, Spotify and The Washington Post to offer digital goods for sale on Facebook – paid apps are coming to Facebook's App Center very soon.

We still expect Facebook to be become a dominant player in the Payments space, similar to a PayPal. Last year, 15 million people bought Facebook Credits, according to their S-1 filing, so it's assumed Facebook has close to 15 million credit cards on file. By the end of this year, once paid apps are added to Facebook's App Center, it wouldn't be surprising if 50 million people, or about five percent of Facebook's users are purchasing apps and other digital good, like movies, music and TV episodes, which means Facebook would have a pool of 50 million people who have entrusted it with their credit card information

At that point it's a very short distance to a "Pay with Facebook" blue box showing up every time you make an online purchase (on web sites everywhere, not just on Facebook). Why re-enter your credit card number when you already trust Facebook to handle the transaction and bill your card? For users this could be seen as more convenient and safer than entering their credit card number on multiple sites. Facebook is PayPal on steroids, with the strength of a billion members.

And then, what's to stop Facebook from introducing a Facebook Credit Card?  Facebook could be bigger than PayPal and become Visa or MasterCard as well. Facebook has the potential to become a universal wallet for both online and offline purchases.

In a recent article at The Daily Beast, Steven Weiss makes an extremely compelling argument why this is the next logical step for Facebook:

"Millions of us are already using Facebook to log on to other sites to comment on articles, share information, or register a product. With FacebookCard added to our Facebook accounts, all we have to do is use that same login, and the transaction is done. Want to ship a gift to your mom? Just select her from your Facebook friends at checkout."

Ironically, it's the enormous potential of Payments as a revenue source that is causing Facebook to phase out the Credits currency. Payments as a revenue source is too important to Facebook's future to take the risk of promoting an untested and unproven currency. To establish Facebook Credits, Facebook would have had to spend significant resources educating the public and building the brand of Credits. It's a much easier solution to simply transact in an already established currency that users understand and utilize.

In addition, it's also speculated that with the growth and establishment of a new currency, Facebook would have faced increasing legal and regulatory scrutiny.

Switching to an existing currency allows Facebook to focus on what they're best at, providing a platform and allowing others to innovate and create value for members.

What Facebook is aiming to become best at next is providing a platform where consumers are comfortable buying the products/applications they find valuable and developers/innovators can generate significant revenue by selling the products they are building. Once paid apps are introduced to the App Center, this massive wave of commerce will start building.

And it's the companies who can successfully surf the ups and downs of this wave that will profit most heavily.

Back in May, Josh James, the co-founder of analytics company Omniture and now CEO of business intelligence startup Domo, announced an eyebrow-raising idea: He was kicking off an eight-week initiative that would require every one of Domo’s 130 employees to become active on social media. Now James says the initiative is paying off, and he has numbers and anecdotes to back it up.

James admits that he had some worries at first. After all, this isn’t just an optional side project — he says that if people want to keep their jobs, they have to complete 20 different tasks designed to acquaint them with social networks and other consumer Internet products. Those tasks include upgrading their Facebook account to include Timeline, creating three circles in Google+, and creating a playlist on a music service like Pandora or Spotify. There was a chance, James says, that people would feel “we’re infringing too much on their personal identities and personalities.” To alleviate that problem, employees were told they didn’t have to use their personal accounts, and could instead create new ones specifically for work.

Still — why do this at all? Especially when you’re selling enterprise products? James says that he’s always trying to build a company culture that’s ahead of the tech curve, something that can be a particularly challenging when you’re based outside of Silicon Valley (Omniture was based in Utah, as is Domo). Omniture seemed to be “more tech savvy than most of the big tech companies we met,” James says, an opinion that was confirmed after it was acquired by Adobe. As for Domo, he adds, “If we’re going to be consumerizing IT and consumerizing BI, our people better know the best of consumerization.”

At the beginning of initiative, dubbed “the #domosocial experiment”, James says the whole team was tweeting an average of 80 times per day. Now that number is more like 400. And where Domo employees previously had about 100,000 connections across sites like LinkedIn and Facebook, they now have 150,000.

James says he can see a difference in the way the team operates. He recalls tweeting out some company news, then seeing it retweeted by more than 50 percent of the workforce. Another time, he says he tweeted about a feature that he was really impressed by see in another product. James didn’t mention it again, but two weeks later an engineer proudly demonstrated a way to add that functionality to Domo’s product. And it’s not just about watching the boss’ Twitter account and keeping him happy. James also says that when he walks through the company’s cubicles, he’s more likely to see (or hear) consumer apps like Pandora or Rdio in action.

“It’s given us a common language,” he adds.

You can track the team’s progress yourself on Domo’s social site, where you can read blog posts from team members and also see the stats on how close the team is getting to completing all of its goals. James says he’s trying to be transparent about the whole process, in part so that other companies can follow his example.

I love me some subscription commerce. Whether it be getting new underwear sent to me in the mail, or having someone pick out shirts for me, I love the idea of paying a flat fee and having shit just show up at my doorstep once a month. It’s even better if whatever’s being sent is kind of a surprise.

That said, there’s a recent trend in subscription commerce that’s disturbingly popped up and recently been flagged in the TechCrunch tips line: The rise of the subscription condom service. Over the past few weeks, it’s been suggested that we (separately) look into DollarRubberClub.com, as well as Rubber of the Month Club. A cursory Google search reveals that there are others, like Lucky Bloke — “the ultimate condom subscription service,” it claims — and Sir Richard’s Subscription Condom Service.

Now why would anyone subscribe to a service that sends you condoms by mail once a month? Dollar Rubber Club touts, “No more embarrassing trips to the drug store. No more funny looks from that pimple-faced kid behind the counter.” Rubber of the Month Club, meanwhile, has a number of different “humorous” reasons that pop up each time you show up on the site. Like Reason #25: Nobody wants to drive a minivan. Or this:

So basically, the target demographic for these services are shut-ins who are not only afraid of growing up and joining the population of adults that might eventually reproduce, but are also desperately afraid of teenaged checkout workers. Apparently these folks don’t want anyone knowing they’re getting laid. Which really, in my experience, is the exact opposite type of person who would need a box full of rubbers showing up at his door every month, but whatever.

So ok, the big argument for buying condoms online isn’t even about the embarrassment factor, it’s about the cost. I mean, let’s face it, buying condoms from the drugstore is a rip-off, everyone knows it, and there are plenty of places online where you can buy a fuckload of condoms, cheaply and easily, and have them delivered to your home or office in very discreet packaging.

The thing I don’t understand is why anyone would feel the need to subscribe to such a service. The services work just as you’d expect them to: You sign up, choose a subscription — generally of 3, 6, 12 condoms or more — and you pay some nominal amount to have that number of rubbers show up at your house once a month.

But here’s the thing: No one really ever knows how much they’re going to get laid in a month. I’m sure there are people out there in the world who keep notes and spreadsheets and collect data and can reasonably guesstimate their average amount of coitus per month, but come on. Unless you’re employed as a professional, or you’re some sort of weird fuck robot, chances are you’re either going to use less condoms than you’re paying some weird shady online company for. Or you’re go over your monthly allotment, in which case you’re screwed. (“Sorry, partner, I guess I just underestimated how often I was going to stick it in.”)

The point is that all of us have ebbs and flows. But subscription commerce services, if done right, should be built on consistent and reliable actions. It sure would be nice to get a new piece of clothing once a month, dudes need to shave every day, etc. etc. But even for the luckiest of those getting lucky, sex isn’t like that.

So anyway, don’t pay once a month knowing that you don’t know how many condoms you’ll actually need. Buy in bulk instead — then you never have to worry about not having condoms when you need ‘em.

Editor's Note: Derek Andersen is the founder of Startup Grind, a 12-city event series helping educate, inspire, and connect entrepreneurs. He's also ex-Electronic Arts and the founder of Vaporware Labs.

A lot has been written about the real estate turf war between San Francisco and Silicon Valley. Most point out that many of the developers these companies target live in the city. The nightlife, walkability, and culture are identified as reasons for the trend. But if the heart of Silicon Valley is losing its allure to startups, why is there no real estate space available? The answer is that Silicon Valley is as hot as ever and here’s why.

The basic premise of these reports is that San Francisco is winning the startup real estate battle right now as companies like Zynga, Twitter, and AirBnB are choosing to put down big roots in the city. This trend is not new to the Valley. Downtown Palo Alto has been ground zero through numerous growth cycles, including this one.

When tech markets heat up and office vacancy evaporates in downtown Palo Alto, founders have to make the call on whether to stay and battle it out in the low vacancy locations or head to where growth is less inhibited. The rental rate/vacancy chart referenced in Rip’s recent article shows the lowest vacancy rates existing between Redwood City and Mountain View, with Palo Alto at 2.2%. As of today the vacancy rate in downtown Mountain View is almost the same.

“The downtown Palo Alto and Mountain View vacancy rates are effectively zero,” says Brian Rieben, a Vice President at Cassidy Turley, who represents some massive Valley tech companies. “Those numbers include the very undesirable or significantly overpriced offices. Most of the activity in these downtown markets is a game of musical chairs. The majority of space isn’t fully marketed to the public and is often spoken for months before the previous lease expires.”

The biggest 'problem' with Palo Alto's real estate market may not be the allure of the city, it may be it’s own occupants. Today Palantir is not only leasing everything available but also pre-leasing any space coming available.

Founder after founder has privately complained to me about Palantir's real estate addiction. Their signage might not be on the buildings, but they're up and down University Avenue. Where does that leave a promising startup with high hopes and anywhere between $1M-$100M in funding? The answer: San Francisco.

Consider Pinterest. They’re moving to the city despite what multiple sources describe as desperately wanting to stay in Palo Alto. But there is no room in the freaking inn. THERE IS NO VACANCY! Other companies like Stripe were in downtown Palo Alto and had to move to the city to grow. Votizen was in Mountain View but also moved north.

For a startup in Palo Alto it is an inevitable question to be faced: Where do we go when there is no more room to grow into? Brian Rieben adds, “It’s equally important to find somewhere affordable and scalable as it is to have close proximity to a potentially rich hiring base.”

So the real dilemma for SV faithful may be how the growth of companies like Palantir and A9 in downtown Palo Alto affect the Valley long term? If former Palo Alto startups like Google, Yahoo, and HP had made the move to the city in their youth would they have come back? Sure Facebook grew much like Palantir in downtown Palo Alto and didn’t leave the city in ruins, but they moved out long before reaching Palantir’s current occupancy level.

Before even considering their Menlo Park location, Facebook attempted to secure more than 1M sq/ft in South Palo Alto’s Stanford Research Park. They tried very hard to make Palo Alto work longterm. What about companies like IDEO, Quora, and Spec (also in downtown)? Where can they go? Trust me these companies aren’t the least bit excited to look beyond Silicon Valley for a new office but they may have no choice.

Would Pinterest uproot their whole team again in 5-years to move back to the Valley? Downtown Palo Alto will always lose companies as they outgrow current supply, but will the expansion of companies like Palantir affect the future of the Valley by forcing the hottest young start-ups to lay deep roots in the rising SF scene? It’s a problem.

While great companies are flocking to the city, it shouldn’t be assumed that it was their first choice. SF is a great place to have a startup, but if size and cost of Palo Alto spaces were apples to apples with San Francisco, based on what many founders have told me most would choose to stay. That makes this a supply and demand issue as much if not more than a lifestyle issue.

The reality is that the market is red hot and there is simply no vacancy at the Silicon Valley inn.

If you’re headed away this summer, leave the Knut behind to keep and eye on things. This small, Wi-Fi-capable widget can transmit various measurements to your iPhone anywhere in the world.

The Knut is a Kickstarter project by Richard Pasek and Jay Gondelman in Boston. They’re looking for $80 per Knut and it has various sensors built in as well as functional sensors for various other measurements.

They’ve surpassed their $25,000 goal so these things will definitely ship. The real questions is how people will use this to monitor their basements, humidors, and elephant paddocks.

Project Page

Apple is making potentially significant changes to the search algorithm in the App Store, at least according to some app developers. If you're a developer or publisher counting on a well-chosen name to help with visibility, things could get tougher from here on out. But if you’re a popular and well-reviewed app, things might be looking up.

This could be an early step in the general revamp of App Store search and discovery that MG Siegler heard about when he broke the news in February that Apple had acquired app discovery startup Chomp.

Basically, it looks like App Store search is now weighting app names and keywords less heavily in its search results. Previously, if you were searching for something like “san francisco parking”, apps whose names included those search terms would rank more highly. Or if you searched for something like “traffic”, you’d get a bunch of games with names like Traffic Rush. Now, you’re more likely to see apps that aren’t just a simple keyword match. In traffic, for example, you see more actual traffic/navigation apps — and yes, a few games thrown into the mix.

We’ve heard a couple of possible explanations about why this is the case. Ben Sann, founder of BestParking.com, first tipped us off to the change, because he noticed that the Best Parking app had suddenly jumped to the top of a number of searches, including “chicago parking,” “dc parking,” and “sf parking”, in each case ranking ahead of apps that were a closer match for the search term. Sann’s theory: Apple is now putting a heavier emphasis on app downloads, so that BestParking has pulled ahead of apps with better names (at least, for a given search) but fewer downloads. If Sann is right, that could mean developers who built localized versions of their apps to target different search terms are going to get screwed, while more generalized apps that serve multiple geographies (like BestParking) will benefit.

Matthäus Krzykowski, cofounder of app search and data company Xyologic, has another explanation. He says that Apple has been incorporating download numbers into its rankings for a while now, and he suggests that what really changed is that Apple has gotten better at “topic detection”. In other words, it’s now better able to infer what you’re looking for when you type in a search term, so if you type in the word “gas”, you probably want apps that help you find gas stations or low gas prices, rather than driving games or apps that happen to have the word gas in their title (like fart apps). His team also says that the search rankings seem to be looking at other indicators of popularity, like ratings and comments.

That theory seems to be backed up by Chomp’s description of its technology: “Chomp’s proprietary algorithm learns the functions and topics of apps, so you can search based on what apps do, not just what they're called.” In other words, if Apple is getting better at topic detection, it’s plausible that Chomp’s technology played a role.

And the change doesn’t seem to be rolling out in every country. It’s hard to do an apples-to-apples comparison for different geographies, because they have different apps and different languages, but our own Ingrid Lunden says she’s seeing similar changes in the UK’s App Store search results. And Krzykowski sent along screenshots of a search for “gas” or “benzin” (German for gas) in Germany and Poland. He notes that in Germany, the results include a lot more navigation apps, while Poland’s results include more random games, suggesting that the change has happened in Germany but not Poland.

In other categories, the change seems to be more subtle. I spoke to one mobile app developer who said that his apps seemed to be ranking higher in multiple categories, with some low-quality apps removed from the rankings, and the search results now matching up more closely with the App Store rankings. However, the change wasn’t dramatic enough that he could say for certain.

We’ve contacted Apple and will update if we hear back.

The Gillmor Gang — Robert Scoble, John Borthwick, John Taschek, Keith Teare, and Steve Gillmor — found plenty to write home about in Microsoft’s Surface tablets and Windows 8 rewrite of the Windows platform. Coming hard on the WWDC Apple announcements, it’s clear Redmond is stepping up its game.

With Skype and the still-not-closed Yammer acquisitions, Steve Sinofsky is trying to buy his way in to social. But once the smoke clears, straddling the desktop and tablet metaphors may turn out to be the biggest threat to Office yet. The only way to save Office revenue may be to give away social and the hardware to run it.

@stevegillmor, @borthwick, @scoblizer, @jtaschek, @kteare

Produced and directed by Tina Chase Gillmor @tinagillmor