SAN FRANSISCO: Twitter Inc, LivingSocial.com and Square Inc are taking steps to bar investors from selling shares on secondary exchanges, an effort to cap the number of stockholders, said people familiar with the companies' plans.

Twitter asked investors in its recent funding round to refrain from sales on exchanges, according to two people familiar with the matter, who asked not to be identified because the agreement is private. Square sent a contract to investors that would prohibit sales, two other people said. LivingSocial is considering similar restrictions, according to two people.

The startups aim to stanch the trading of stock on SecondMarket Inc. and SharesPost Inc. — open online marketplaces that process share sales of companies such as Facebook Inc, Zynga Inc and Twitter. The transactions spread private financial information and bring in new investors who may not understand the company and the risks involved, said Hans Swildens, a managing director of Industry Ventures LLC.

"Board members and companies are getting more proactive, putting in procedures to manage the whole process," said Swildens, whose San Francisco-based firm has been buying secondary shares for almost 12 years. "They want to keep the shares in the family.

They don't want it to be the Wild West."

Matt Graves, a spokesman for Twitter in San Francisco, declined to comment. Katie Baynes, a spokeswoman for San Francisco-based Square, also declined to comment, as did Brendan Lewis at Washington, DC-based LivingSocial.

Keeping control
Private companies already have greater control over their stock than public corporations. They typically have the ability to see proposed transactions of their shares on exchanges before they take place and buy them at the agreed-upon price, a process called the right of first refusal. In some cases, companies hand that right to specific investment firms, Swildens said.

Twitter, the leading microblogging service, is raising $800 million in financing and plans to about half of that to buy back shares from employees and early backers. The funding round was led by Yuri Milner's DST Global, the Russian investment group that has purchased secondary shares of Facebook, Zynga and Groupon Inc.

"It's in everyone's interest to let the company conduct an effective and organized offering of the shares, as opposed to having ad hoc leakage of the shares," said Ted Hollifield, a partner at law firm Dorsey & Whitney LLP in Palo Alto, California.

Twitter fundraising
Twitter was valued at $8 billion in its latest round, and daily-deal site LivingSocial raised money in April at a $3.5 billion valuation, according to people familiar with the deals. Square, a mobile-payment startup, was valued at more than $1 billion in its fundraising in June, a person said. Square Chief Executive Officer Jack Dorsey also serves as executive chairman of Twitter, a company he co-founded.

The move to restrict share sales comes a year after Zynga and Facebook began charging at least $2,500 for such transactions, fees that legal experts say were geared toward discouraging the practice. US regulators also are considering limits on secondary markets. In January, SecondMarket said it received a request for information from the US Securities and Exchange Commission.

Giuseppe Zocco, a partner at Index Ventures, said his firm is buying shares of portfolio companies from some early investors. The firm invested in ad network Adconion Media Group this year, and it used a portion of the funding to purchase stock from angel investors, Zocco said. Handling secondary sales internally lets the company avoid the disruption of dealing with exchanges, he said.

A distraction
"It makes the focus and execution sharper because you don't have to think about all this other stuff," said Zocco, who's based in Geneva. "These other things are a distraction."

Having too many shareholders also presents a regulatory challenge because the SEC requires companies with 500 or more investors to disclose financial results. Facebook, the world's largest social network, said earlier this year it plans to start reporting results by April 2012, even if it hasn't held an initial public offering by then.

San Bruno, California-based SharesPost and New York-based SecondMarket have taken measures to work with companies, rather than get cut out of transactions altogether. Attorneys for top technology startups have recently met with representatives of SecondMarket to discuss ways to limit private share sales from happening without a company's involvement, said Adam Oliveri, head of the private-company market at SecondMarket.

Ad Hoc consortium
"We kept getting requests from companies asking, 'What do we put in our bylaws to make sure secondary trading doesn't happen before we're ready for it?'" he said.

The "ad hoc consortium" of lawyers is working to draft standard contractual language restricting secondary sales until enabled by a company, said Oliveri, who would not name the attorneys present.

Before LinkedIn Corp. held its IPO earlier this year, the company worked with SharesPost to set up controls on the site limiting the sale of stock only to other existing shareholders.

Prohibiting stock sales through secondary markets could land companies in legal trouble with shareholders who want to cash out, said Greg Brogger, president at SharesPost.

Last year, Abu Dhabi investment group Alpha Investments sued Zynga for restricting a share sale on SecondMarket. After former Zynga employee Andrew Trader attempted to sell $12.9 million in the company's stock to Alpha, Zynga said it would only allow the transaction if the firm agreed not to sell the shares until 180 days after a Zynga IPO. In June, the attorney for Alpha filed to dismiss the case.

"Judges don't like it when companies tell their shareholders that they can't sell the shares they have bought and paid for," Brogger said. "The more draconian and the more unreasonable the prohibitions are, the more these companies are inviting lawsuits."
Having too many shareholders also presents a regulatory challenge because the SEC requires companies with 500 or more investors to disclose financial results. Facebook, the world's largest social network, said earlier this year it plans to start reporting results by April 2012, even if it hasn't held an initial public offering by then.

San Bruno, California-based SharesPost and New York-based SecondMarket have taken measures to work with companies, rather than get cut out of transactions altogether. Attorneys for top technology startups have recently met with representatives of SecondMarket to discuss ways to limit private share sales from happening without a company's involvement, said Adam Oliveri, head of the private-company market at SecondMarket.

Yesterday, we noted that during a recent interview in Los Angeles, singer John Mayer shared his thoughts about why Twitter was “over.” Today, on his Tumblr blog (appropriately titled One Forty Plus), he clarified a bit.

In his post entitled, “Twitter Isn’t “Over”, I’m Over It,” Mayer talks about how the over-abundance of tiny amounts (140 characters) of information on Twitter is a limitation of the service. That line of thinking has been around ever since Twitter’s launch a few years ago, so nothing groundbreaking there. He does, however, make a pretty decent point, “Finding out in 140 characters what a stranger has to say about you is like a mathematical equation without an established value of ‘x’. Who are you, stranger?”

But much more interesting is what Mayer does next. He gives a huge, wet kiss to another micro-blogging service: Tumblr.

“This is where Tumblr comes in. It’s the future of social networking if your image of the future features intelligent discourse. I love reading other Tumblr users replies, because they’re thoughtful by virtue of the fact that if they’re not, they’ll bring the intellectual property value of their own blog down, and that’s a commodity on Tumblr,” he writes.

And Mayer goes on, “This post is an experiment in itself. If you want to communicate me, open a Tumblr account, follow me, repost my blog and then add to it. I’ll follow you back. Agree or disagree, lionize or demonize, but for God’s sake, be original. You’ll have all the room in the world to do it now.”

Damn. That’s the type of endorsement you can’t pay for.

And Tumblr knows it. Founder David Karp responded via his Tumblr blog with, “After three years at this, I can’t begin to describe the feeling of having this philosophy — the reason Tumblr will never feature a legacy comment system — described so perfectly. I love you, John.“

Yazzem, the simple topic creator for Twitter or FriendFeed, has launched version 2 of their online service. Yazzem allows you to start topics about anything you want, basically creating a new way to interact with both Twitter and FriendFeed. Once the topics have been created, anyone can join your topic to connect and discuss about it in 140 characters or less. Yazzem launched in June 2008, and has picked up quite a user base for a very specific core audience.

Launching in version 2 of Yazzem is a redesign of the Yazzem site, themes that users can choose from for their page, and latest activity streams for all your friends. Also launching with this version is subscribers, which is similar to Twitter followers or FriendFeed subscribers. Another key feature that is launching is user stats, so now users will be able to see information like number of subscribers and activities a particular user has deciding whether or not to subscribe to them.

Yazzem also launched a new mobile version of Yazzem which is basically just a redesign of the old mobile version that fits much better for iPhone and iPod Touch users when browsing on the go.

It’s unclear how Yazzem will make money, but for such a young company, Yazzem does show some promising features and a future. Yazzem was started by Zachary Collins and Dustin Snider, who are both 14 years of age.

Mixx, the Digg-like site that got a total makeover earlier this year, is launching a new site today that takes a different approach to surfacing hot links: Twitter. The site is fittingly called TweetMixx , and it’s currently in private beta. TechCrunch readers can grab one of 1000 invites by going here and using the following credentials: username=techcrunch, password=tweetmixx_beta.

TweetMixx works by skimming through tweets and looking for links. The more times a given link appears on Twitter, the higher placement it gets on TweetMixx. Likewise, you can log-in using your Twitter credentials and receive a personalized hotlist of tweets based only on the Twitter users you follow.

If this sounds familiar, it’s because the idea isn’t a novel one. TweetMixx is facing off with plenty of competition — Tweetmeme has become quite popular, and sites like twitrollr and tweetlinx do very similar things (and we just saw TuneIn launch this month at our RealTime CrunchUp).

But CEO Chris McGill says that there are a few differences that help set TweetMixx apart. For one, the site will figure out the name of the article being linked to, so rather than seeing something like http://www.techcrunch.com/2009/07/24/adwords-gets-more-local/, you’d see the article’s title, “AdWords Gets More Local”. One other feature offered by TweetMixx is a much-improved version of Twitter Search. Using the standard engine offered by Twitter, you can only search through the text of tweets, but not the articles they’re linking to — if someone fails to explain what a link is in their tweet, then it won’t show up in results. Using TweetMixx, you can search through both standard tweet text and the names of the articles that are being linked to, which can turn up many more relevant results.

Mixx’s decision to launch TweetMixx is yet another display of how powerful Twitter can be when it comes to surfacing new content, as it’s often much faster than a Digg-like voting system. The biggest clash is yet to come, though: pretty soon bit.ly, the very popular URL shortener, is going to be launching its own Digg competitor, which is going to have a huge volume of metadata to draw from.

The Data Portability wars just got a little more interesting. Power.com, the service that lets users aggregate their social networks into a single hub, is countersuing Facebook for restricting users’ ability to export and move their own data. The company is claiming that Facebook is unlawfully withholding the data that users own (as stated in Facebook’s own ToS), and is stifling competition by refusing to allow third party services like Power.com to access the data, among other things. This should be fun.

It’s been over six months since we last heard about these two duking it out, so here’s a quick refresher: Power.com launched last August, offering users the ability to import their latest updates and user information from Facebook, MySpace, and a number of other social networks. It did so by tapping into the social networks’ APIs when available, but also by scraping user data when they couldn’t access it through other means — a big no-no for most social networks, as we saw with the Scoble/Plaxo fiasco. It didn’t take long for Facebook to file suit against Power.com for scraping user data and storing user credentials (another violation of Facebook’s ToS). A week later we heard that the two parties might be close to a settlement, but apparently that didn’t work out — the suit is still pending.

Power.com CEO Steve Vachani likens the current situation with Facebook to one the cell phone carriers saw before they allowed for number portability. In the case of the cell phones, users were effectively locked into a certain carrier because they had spent so much time building up contacts and giving them their phone numbers, and it would be too much effort to switch to a new one. It’s an analogy that has been drawn since the data portability movement began, and while it may make sense, there’s no guarantee the courts will view phone numbers and a user’s social network data in the same light.

That said, Power.com is making some good points. The idea that users aren’t allowed to input their username and passwords into other services is particularly hypocritical, as that’s exactly what Facebook invites you to do to import contacts from services like Gmail and Yahoo Mail.

Facebook can point to its efforts with Facebook Connect, which lets you log in with your Facebook username at third party sites and import some select data from your profile, as evidence of its openness. But this isn’t true data portability, it’s just a new walled garden — third parties are generally only allowed to cache your data, which means that you’re still tethered to Facebook.

Of course, while we may not like the current situation, there may well not be anything illegal about it — that’s up to the courts to decide. We’ve all agreed to the Facebook Terms of Service, and there’s no question that Power.com breaks them. We’ll be following the upcoming case closely.

For all of you World of Warcraft fans out there, there’s a new Twitter client that is worth checking out. TweetCraft is an in-game Twitter client for WoW that lets you send and receive Tweets within a game. If you are busy in the middle of a WoW match, you can put Tweets in a queue to send when it’s more convenient.

The client also lets you upload in-game WoW screenshots using TwitPic and will automatically send out Tweets when you log in, enter an instance or get an achievement.

Tweetcraft also caught the attention of Twitter co-founder Biz Stone, who blogged about the client today.

Here’s a video with details of the client:

It’s one thing when Internet companies like Facebook adopt OpenID, it’s another when a giant retailer like Sears Holdings Corporation embraces it. Sears has just announced that it will enable over 1 million monthly MySears and MyKmart visitors to use their Google, Facebook, MySpace, Twitter or other accounts to log into the community websites, enabling them to write product reviews and share information about products and services without the need to create a separate account.

Customers will also get access to special offers and coupons in return for their participation in the community.

For the integration, Sears teamed up with Viewpoints Network, a social technology and media company that recently integrated JanRain’s RPX solution into their online community and identification platform.

The question is: is Sears – despite its claims of driving innovation in online retailing, which seems a bit over the top – merely a late adopter looking to try something new or is this a sign of OpenID maturing to a point where it can finally reach that tipping point where it really starts taking off with a mainstream audience?

In my recent interview with OpenID evangelist Chris Messina, he expressed the hope that integrations outside the technology industry – such as the U.S. government – would at some point occur more often, but he also acknowledged that the initiative struggles with branding and getting the word out there.

It’s integrations like these that could really help OpenID gain more traction, but the main question will always be if OpenID is just a solution looking for a problem, or if there’s a genuine need for a decentralized, universal login standard.

Despite the flood of criticism from technology pundits, the jury’s still out on that.

We were just forwarded an e-mail conversation between a Twitter API team member and a third-party developer because the latter was using a UI for its web-based service that was admittedly very similar to Twitter’s web application.

The startup of course has the right to protect its assets and do its utmost to avoid confusion with users who might think they’re using a Twitter product rather than that of a developer making use of its API.

But something else caught our attention in the thread:

    Hi,

    Twitter, Inc is uncomfortable with the use of the word Tweet (our trademark) and the similarity in your UI and our own. How can we go about having you change your UI to better differentiate your offering from our own?

    Thanks,

First of all, I had no idea that the word ‘tweet’ was trademarked by Twitter, and after browsing its Terms of Service and API documentation I couldn’t find any reference on their website about this either. (update: a commenter links to the US trademark application, which was filed April 16, 2009 and another one claims a trademark application has been filed in Europe in June as well)

Second, I’m assuming that the note about the company being ‘uncomfortable’ with the use of the term was in reference to the combination of that with the closely resembling UI of the web application. If I’m wrong and this signals that Twitter wants to move forward with actively barring third-party apps from using the word ‘tweet’ in their names in the same way that it refrains them from using the word ‘twitter’, then this could have consequences for a plethora of developers.

Should TweetDeck, TweetMeme, Tweetie, BackTweets, Tweetboard etc. start worrying?

We’ve asked Twitter management for clarification.

While it is pretty much the standard email client, Microsoft Outlook has long had problems rendering HTML correctly in emails. And the latest version, Outlook 2010, due sometime in the next several months, doesn’t look like it’s going to be any better — and it actually may be worse. And a lot of users aren’t happy about it at all.

A group of people apparently felt strongly enough to create a site called Outlook’s broken — Let’s fix it. The site is simple, it’s a constantly updating stream of users tweeting out their desire for Microsoft to fix this problem with Outlook. Right now, it’s just about 6,000 tweets, but it’s growing about a tweet every second (even at this hour of the night here in the U.S.). When a new tweet comes in, that user’s icon appears on the screen next to hundreds of other icons that had previously tweeted about it. And as the stream updates, random tweets about fixing Outlook are flashed on the screen.

Here’s the text from the site:

    Microsoft have confirmed they plan on using the Word rendering engine to display HTML emails in Outlook 2010.

    This means for the next 5 years your email designs will need tables for layout, have no support for CSS like float and position, no background images and lots more. Want proof? Here’s the same email in Outlook 2000 & 2010.

    Outlook 2010 is still in beta and Microsoft wants your feedback. It’s time to rally together and encourage Microsoft to embrace web standards before it’s too late.

    Let’s use Twitter to send a clear message to Microsoft.

    Join 5,927 others asking Microsoft to improve standards support and make sure you include fixoutlook.org in your tweet. We’ll pull together every tweet that includes the link here to give Microsoft a unified message from the community.

Again, to have your voice heard in this cause, simply include the http://fixoutlook.org/ URL somewhere in your tweet. Here’s the comparison image of what HTML rendering looks like in Outlook 2000 versus what it will look like in Outlook 2010.

Market research firm The NDP Group has issued a report that says Web users who are active on social networking site Twitter are more engaged with music and, more importantly, tend to be more likely to purchase music online.

The firm bases these conclusions on less than 4,000 completed surveys for its quarterly music-acquisition study.

First, the engagement: according to the report, one-third of surveyed Twitter users listened to music on a social networking site, 41% listened to online radio (compared to 22% among all Web users) and 39% watched a music video online (versus 25% among all Web users) during the first quarter. Twitter users are also said to be twice to visit services like MySpace Music and Pandora than average Web users.

Music buyers’ awareness of Twitter was 67% in the first quarter, compared with 52% of general Web users; 12% of music buyers said they used Twitter in the past three months, versus 8% overall. Some 33% of Twitter users purchased a CD recently, compared with 23% of Web users.

Twitter users also seem to be more keen on purchasing music online, according to NDP: 34% bought a digital download, compared with 16% of general Web users. Apparently, they buy more on average too, 77% more so than users who are not on Twitter (yet).

Russ Crupnick, entertainment industry analyst for NPD, commented:

    “[This] study shows that there are segments of consumers who are more actively integrating Twitter as a key tool for communicating and networking. Based on their music-purchasing history, active Twitter users are simply worth more to record labels and music retailers than those who are not using Twitter.”

We recently wrote about artist duo TRV$DJAM offering a download of their new mixtape free of charge in exchange of a tweet, and how Twitter helped Universal Motown Republic put one of its new artists, Asher Roth, on the map. You can find a lot of music-related applications tied to Twitter in this post.