Mr. Patterson

Skift broke the news today that former Jetsetter cofounder Drew Patterson was named the new CEO of Room 77, a hotel price comparison startup that raised almost $44 million in funding from investors like Expedia, Concur, Bob Pittman, and General Catalyst Partners.

Mr. Patterson was CEO of Jetsetter--a flash sales luxury travel site operated independently under the Gilt Groupe umbrella--for more than three years until Gilt Groupe chairman Kevin Ryan asked him to step down last May. The move by Jetsetter's board followed an exodus of senior executives, low morale, and fears of a "mutiny" among staffers. 

After leaving Jetsetter, Mr. Patterson, a former executive at Kayak.com, cofounded CheckMate, an app that allows hotel guests to check-in from their smartphone. He's served as CEO there since January, according to his LinkedIn profile and has changed his Twitter handle from @JetSetDrew to the more nimble @DrewPats. Skift reports that Room 77 has "absorbed" CheckMate, as well as Mr. Patterson's cofounder, Adam Rugel and some team members.

Skift also reports that Mr. Patterson been busy raising money for Checkmate and already secured funding from high-profile techies like Twitter cofounder Biz Stone and Twitter's former chief scientist Abdur Chowdhury.

In an interview with Skift, Patterson, who was VP of marketing at Kayak for three years before co-founding Gilt Groupe’s Jetsetter in 2009, said no company has “claimed the mantle of leadership” in mobile and vertical hotel search, which he described as only being “in the second or third inning.”

With all that investor pedigree, Skift wondered whether Room 77 should have "tapped a CEO candidate with public company experience for a possible IPO," posing questions about the motivations of Room 77 founder and chairman Brad Gerstner:

Speaking of spin, some will question the announcement’s back story.

Gerstner and Patterson say the idea to hire Patterson as Room 77′s first CEO only emerged around three weeks ago when the two were having dinner and discussing mobile, hotel search, and Patterson’s fledgling CheckMate.

As chairman and founder, Gerstner has wielded control of Room 77 since its beginnings in 2010. Perhaps opting for Patterson instead of one of the “bigger names” would ensure that Gerstner’s choreography goes unchallenged.

That's the thing about founder/chairman, they tend to like to control.

As for Mr. Patterson's former company, Gilt Groupe put Jetsetter up for sale last October. At the time, the Wall Street Journal reported Gilt had trouble finding buyers and lowered its asking price.

When we spoke to Mr. Ryan in December, he said everything was on schedule for the sale and that he expected "binding bids" due that month. We asked about the status of the sale this afternoon, but a Gilt Groupe representative declined to comment.

Mr. Ryan (Photo: Invoke Media)

Weeks after news broke that flash sales giant Gilt Groupe put its travel deals site, Jetsetter, up for sale, the Wall Street Journal reports that Gilt is looking for a new CEO to replace company founder Kevin Ryan. Sources told the Journal that Mr. Ryan and the Gilt board agreed two months ago to quietly begin the hunt for a new CEO who can help usher the struggling e-commerce site towards a successful IPO.

Despite flailing forays into verticals like menswear and travel, Gilt is still eyeing going public within the next 18 months, and wants a CEO who can revamp Mr. Ryan's business strategy in order to "generate sufficiently predictable profits."

This is the second high-level shakeup in four years for the New York-based e-commerce company. In September 2008, Susan Lyne was brought in to head the company, but was then replaced by Mr. Ryan in 2010 as Gilt was poised to expand into new markets.

Gilt has not been without its stumbles. Back in January, the company laid off 90 employees, closing Gilt City offices in six different markets.

UPDATE 2 p.m.: Betabeat spoke with a source close to the company who offered a different version of events. According to the source, it was never Mr. Ryan's intent to stay on as Gilt Groupe's CEO through its transition into a public company.

Gilt Groupe is one of three companies in the AlleyCorp network, along with 10Gen and Business Insider--both prominent, fast-growth New York startups. Mr. Ryan's business partner Dwight Merriman, a fellow DoubleClick veteran, also does not have plans to stay on as CEO, should 10Gen go public, added the source.

Considering Mr. Ryan's tenure at Gilt, the source also scoffed at the idea that the board, where Mr. Ryan has voting power, was searching for someone with more ecommerce experience. Rather, the source said the board had always been aware of Mr. Ryan's intent and with an IPO possibly happening within six months to a year, it was time to start the search.

Now that 10Gen is busy scaling--the source said 10Gen had raised $50 million at a $500 million valuation--Mr. Ryan will be advising on matters like sales, as opposed to 10Gen's early day when Mr. Merriman, DoubleClick's former CTO, exclusively handled 10Gen for AlleyCorp. Mr. Ryan also recently joined the board of the Yale Corporation, which manages a $19.3 billion endowment.

The source said Mr. Ryan is expected to still devote the bulk of his time to Gilt and will keep his office with the company, returning to the type of role he had in his previous post at Gilt's chairman.

Nitasha Tiku contributed reporting to this article. 

Salesforce CEO Marc Benioff. (Photo: Wikipedia)

After rumors began swirling on Twitter about layoffs at Salesforce, the cloud-computing company confirmed to Business Insider that it has laid off a fair chunk of its Radian6 employees. Salesforce says that less than 100 employees were impacted, but considering that Radian6 boasts only 320 employees total (according to Crunchbase), that's still almost a third of the staffers being shown the door.

Radian6, a social media monitoring platform, is an integral part of Salesforce's big play for a piece of the social marketing space. It acquired Radian6 back in March 2011 in order to build out the Salesforce Marketing Cloud.

In June of this year, Salesforce also acquired New York-based social media marketing company Buddy Media for a reported $689 million. We noted then that an acquisition of Buddy Media made sense following Facebook's bungled IPO. By hiring an "IPO-friendly CFO," Buddy had signaled its desire to go public, but after Facebook's shares dove following its own IPO, that left less room for social marketing companies to successfully follow in its footsteps.

Radian6 and Buddy Media offer complementary products within the Salesforce Marketing Cloud. Radian6 provides a way for companies to listen to how people are talking about their brands on social platforms, whereas Buddy Media offers a full-scale social marketing dashboard—including publishing and analytics—for brands.

The layoffs at Radian6 also come on the heels of Salesforce filing documents with the SEC regarding its acquisition of Buddy. Though many noted at the time of the acquisition that the purchase price seemed a little high for the social media marketing company, details revealed in the SEC filing show an even grimmer financial situation.

First, the actual acquisition price was even higher than originally reported, at $745 million. The filings also show that Buddy Media lost $20 million in the first six months of 2012, up from $3.5 million in January to June of 2011.

According to Business Insider:

Buddy Media does not appear to be scaling toward profitability. Rather, it's going backwards — losing more money on its revenues as it grows....

In 2011, its losses were 34% of its revenues. In 2012, they're 114% of revenues.

In 2011, Buddy Media spent $12.8 million to make $10.2 million in revenues; in 2012 it spent $35 million to make $18 million.

Given Buddy Media's financials and the layoffs at Radian6, could Salesforce be looking to shutter--or at least phase out--its fledgling social marketing arm?

Competitors like Adobe Social (where this reporter used to work) are ramping up with massive advertising campaigns in an effort to assert their market dominance. Or perhaps the solutions offered by Radian6 and Buddy Media had too much crossover, and Salesforce is attempting to trim the fat while honing the Marketing Cloud.

For its part, Salesforce argues that it's simply "rebalancing its resources," according to a statement sent to Betabeat:

With the combination of Radian6 and Buddy Media, the Salesforce Marketing Cloud is the undisputed leader in social marketing and the only suite that allows brands to unify social listening, engagement, advertising and measurement. With the integration of Radian6 and Buddy Media, the Salesforce Marketing Cloud is re-balancing its resources to support its growth, including moving from a hub to a distributed model for certain customer-facing roles, consolidating marketing and dramatically increasing investments in R&D. Fewer than 100 people were impacted globally.

Update:

A Salesforce representative has clarified that the layoffs were not concentrated solely on Radian6, but instead spread throughout the Salesforce Marketing Cloud (which could include Buddy Media employees).

Mr. Pincus (Photo: Wikipedia)

In response to questions about layoffs, Zynga emailed Betabeat an internal memo that CEO Marc Pincus sent out to staffers this afternoon. In the note, Mr. Pincus confirmed that the company cut approximately five percent of its full-time workforce today, including the shuttering of its Boston studio and mass layoffs at its Austin location.

Mr. Pincus also said that Zynga is proposing closures of its Japan and U.K. offices. In addition, the company will be sunsetting 13 of its games and reducing investment in TheVille, a Facebook game that's facing a lawsuit from EA for looking a whole lot like a Sims game.

In the memo, Mr. Pincus wrote that he believes the cost-cutting measures will "improve our profitability and allow us to reinvest in great games and our Zynga network on web and mobile."

The memo comes after a day of intense rumors about the flailing social gaming company filled the tech universe. Despite the fact that the news emerged during the attention-sapping Apple keynote, TechCrunch reported that the timing of the news had more to do with Zynga's impending earnings call, scheduled for tomorrow, than with the Apple presentation.

Earlier reports indicated that the Boston and Austin offices would be closing altogether; Austin, however, will remain open, though its staff was dramatically reduced.

Zynga has been on a downward spiral for the last few months, reporting an estimated net loss of $95 million to $105 million for its third quarter, which will be discussed on tomorrow's earnings call. Following that announcement earlier this month, its stock price immediately plummeted 19 percent. Currently, it's hovering around $2.20, after experiencing a 5.17 percent drop today.

SuperData Research analyzed some of Zynga's recent game statistics and concluded that player engagement reached an all-time low of 14 percent in September and that it has fewer monthly active users in simulation games now than it did two years ago. The hope for Zynga's salvation, SuperData's Sam Barberie (and others) have argued, is a pivot to social gambling, but current U.S. laws have tight control over the function of gambling games.

You can read the full text of Mr. Pincus' internal memo below.

Team,

Earlier today we initiated a number of changes to streamline our operations, focus our resources on our most strategic opportunities, and invest in our future. We waited to share this news with all of you until we had first spoken with the groups impacted.

As part of these changes, we’ve had to make some tough decisions around products, teams and people.  I want to fill you in on what's happened and address any concerns you may have.

Here are the most important details.

We are sunsetting 13 older games and we’re also significantly reducing our investment in The Ville.

We are closing the Zynga Boston studio and proposing closures of the Zynga Japan and UK studios.  Additionally, we are reducing staffing levels in our Austin studio.  All of these represent terrific entrepreneurial teams, which make this decision so difficult.

In addition to these studios, we are also making a small number of partner team reductions.

In all, we will unfortunately be parting ways with approximately 5% of our full time workforce.  We don’t take these decisions lightly as we recognize the impact to our colleagues and friends who have been on this journey with us.  We appreciate their amazing contributions and will miss them.

This is the most painful part of an overall cost reduction plan that also includes significant cuts in spending on data hosting, advertising and outside services, primarily contractors.

These reductions, along with our ongoing efforts to implement more stringent budget and resource allocation around new games and partner projects, will improve our profitability and allow us to reinvest in great games and our Zynga network on web and mobile.

Zynga made social gaming and play a worldwide phenomenon, and we remain the industry leader.  Our success has come from our dedication to a simple and powerful proposition – that play is not just something people do to pass time, it’s a core need for every person and culture.

We will all be discussing these difficult changes more with our teams and as a company.  Tomorrow, Dave and I will be hosting a post-earnings webcast (details to follow) and next week we will be discussing our broader vision and strategy during our quarterly all-hands meeting.  I’m confident this puts us on the right path to deliver on the promise of social gaming and make Zynga into an internet treasure.

If you have any immediate questions, I hope you will talk directly with your manager, Colleen, or me.

I look forward to talking with you tomorrow.

Mark

With reporting contributed by Nitasha Tiku.

(Photo: Insider Monkey)

Social gaming company Zynga has endured a rough couple of months. After its acquisition of the NYC-based company OMGPOP--producers of the fad-friendly game Draw Something--Zynga has experienced a downward spiral. Earlier this month, it reported an estimated net loss of $90 million to $105 million for its third quarter, sending its already-low stock price into a tailspin. Now, The Next Web reports that the company has laid off 100 staffers from its Austin headquarters, and may even be shuttering its Boston office altogether.

Writes The Next Web:

We’ve heard from a former employee at Zynga who tells us that the layoffs did happen in the company’s Austin office. Additionally, TheVille will be discontinued. More than 100 employees were let go and ordered to turn in their computers, phones, and badges — many of whom have been working at the company for more than two years.

Employees affected by this change were given two hours to vacate the office. It appears that those affected were from two different game divisions: theville and bingo.

Gamasutra reports that it has received first-hand confirmation that Zynga is shuttering the Austin office altogether. [Update: Gamasutra says they may have incorrectly reported the full closure of the Austin office. "We can confirm that over 100 people are out of work in Austin, but we can not confirm whether the studio is remaining open in some capacity, nor if Zynga's QA office in Austin has been affected."]

Gamasutra also reports it has heard unconfirmed rumors that Zynga also intends to shut down its Boston and Chicago offices. A Twitter user reported to Gamasutra that one of his friends was laid off from the Boston office, and posted the following to his Facebook: "Zynga Boston is no more. Shocking and not awesome."

A source confirmed to The Verge that there have been layoffs in Austin, Boston and Chicago today.

[Update 4:05 PM: Techcrunch reports that it has confirmed Zynga has shuttered its Boston office and laid off 2/3rds of its Austin employees. "One former employee said the Boston office was almost ready to release a product that Zynga management was enthusiastic about. But the need to trim the company through severe layoffs meant that product couldn’t be seen through to launch."]

Zynga also has a New York office and Betabeat is investigating whether or not employees there will also face layoffs. OMGPOP cofounder Dan Porter was announced as the VP and general manager of Zynga New York back in March. ”Maybe we can turn New York City into a hotbed of gaming activity as well,” Mr. Porter told us then.

As TechCrunch points out, TheVille--which is kind of like The Sims but lame?--has been hemorrhaging users, losing 33 percent of them in just one month.  In fact, in its third quarter results, Zynga blamed downgraded revenue forecasts on "reduced expectations" for games like The Ville. The company is also facing a lawsuit from EA games for violating copyright laws.

In keeping with its questionable ethics, employees appeared to have been notified of layoffs during Apple’s keynote event, when most tech outlets would be focused on Apple’s announcements.

UPDATE: As news of the layoffs continues to leak, anticipation for Zynga's third quarter earnings call scheduled for tomorrow afternoon is building. Like, oh, pretty much everyone, Sam Barberie, who has been crunching Zynga's daily active user numbers for Super Data Research, anticipates "bad news, especially with regard to their simulations games." Earlier this month, shortly after Zynga released its downgraded forecasts, Fortune's Dan Primack tweeted:

Zynga needs legalized online poker yesterday.

— danprimack (@danprimack) October 4, 2012

Mr. Barberie, who recently released a report on the company's future concurred, predicting a "definite move into the social casino games."

"Basically, that's sort of where the industry is heading as one of the remaining places to make money," he said. "They got rid of a bunch of people in the sim games and bingo to refocus on the real money games."

Poker games were mentioned during Zynga's last earnings call, with an expected release date next year. "[Zynga is] gaining users, but not maintaining them. If they're not maintaining their users, they're not going to turn those players in payers," via in-app purchases or advertising revenue, he said. "The thing about social casino is that it's gambling, which has a hook regardless of the medium that it's in."

Update 2:

A former Zynga employee told TechCrunch, "[CEO Mark] Pincus wants to be able to say that the company’s profitable but that’s harder as revenue goes down. They’re doing short-term things that don’t make any sense at all if you’re thinking about this being a stable company with $1.6 billion in cash in the bank."

Update 3:

A Zynga representative emailed Betabeat a copy of the internal memo from CEO Marc Pincus:

Team,

Earlier today we initiated a number of changes to streamline our operations, focus our resources on our most strategic opportunities, and invest in our future. We waited to share this news with all of you until we had first spoken with the groups impacted.

As part of these changes, we’ve had to make some tough decisions around products, teams and people.  I want to fill you in on what's happened and address any concerns you may have.

Here are the most important details.

We are sunsetting 13 older games and we’re also significantly reducing our investment in The Ville.

We are closing the Zynga Boston studio and proposing closures of the Zynga Japan and UK studios.  Additionally, we are reducing staffing levels in our Austin studio.  All of these represent terrific entrepreneurial teams, which make this decision so difficult.

In addition to these studios, we are also making a small number of partner team reductions.

In all, we will unfortunately be parting ways with approximately 5% of our full time workforce.  We don’t take these decisions lightly as we recognize the impact to our colleagues and friends who have been on this journey with us.  We appreciate their amazing contributions and will miss them.

This is the most painful part of an overall cost reduction plan that also includes significant cuts in spending on data hosting, advertising and outside services, primarily contractors.

These reductions, along with our ongoing efforts to implement more stringent budget and resource allocation around new games and partner projects, will improve our profitability and allow us to reinvest in great games and our Zynga network on web and mobile.
Zynga made social gaming and play a worldwide phenomenon, and we remain the industry leader.  Our success has come from our dedication to a simple and powerful proposition – that play is not just something people do to pass time, it’s a core need for every person and culture.

We will all be discussing these difficult changes more with our teams and as a company.  Tomorrow, Dave and I will be hosting a post-earnings webcast (details to follow) and next week we will be discussing our broader vision and strategy during our quarterly all-hands meeting.  I’m confident this puts us on the right path to deliver on the promise of social gaming and make Zynga into an internet treasure.

If you have any immediate questions, I hope you will talk directly with your manager, Colleen, or me.

I look forward to talking with you tomorrow.

Mark

If you have any information about the layoffs, please email tips@betabeat.com or drop us an anonymous tip from the top of our homepage.

Mr. Ryan (Photo: Invoke Media)

After a tumultuous spring that led to staffer mutiny and the ouster of CEO Drew Patterson, Gilt Groupe has decided to put its travel site up for sale, according to sources who talked to The Wall Street Journal. The Journal reports that the company has been shopping around Jetsetter for the past few weeks with an asking price around $50 million, but so far no interested bidders have taken the bait.

Writes the Journal:

Gilt's move to sell the unit underscores how the New York-based company has struggled at times to expand beyond its core business of holding time-limited online "flash sales" of women's fashions. It is under pressure to increase its revenue and expand into new markets, having raised another $138 million last year from a group of venture capitalists, a deal that valued the small retailer at $1 billion.

The Journal notes that sources said the asking price of the flailing travel company was set too high at $100 million, underscoring the fact that "there hasn't been much interest" from buyers.

UPDATE: A source close the situation told Betabeat that the $100 million figure was never discussed and that the actual price is in the $30 to $50 million range. The source also said the process is several weeks along and that Gilt has had discussions with both companies in the travel space and financial players. New owners, the source reasoned, could allow Jetsetter to accelerate its growth.

Drew Patterson, Jetsetter's former CEO, left in May following an exodus of six senior executives. Gilt Groupe CEO Kevin Ryan asked Mr. Patterson to step down, citing increased staff turnover and sinking morale. Since then, Jetsetter has not publicly named a new CEO. Rob Deeming, Gilt Groupe's director of strategy and operation, was named as acting manager. At the time, Mr. Ryan told Betabeat he expected to appoint a new CEO by November.

“More than half of us are looking to leave within the next month, at which point the business won’t be operational,” a Jetsetter employee told Betabeat at the time.

If you have any information about the sale, please email: tips@betabeat.com

With contributing reporting from Nitasha Tiku

Previously:

Kevin Ryan Asks Jetsetter CEO Drew Patterson to Step Down After ‘Mutiny’ From Staffers

Flash Dance! Luxury Flash Sales Sites Regroup After Layoffs

Mr. James (Photo: Lot 18)

Yesterday, Lot18--the members-only site for flash sales of wine--announced in a statement distributed to wine industry publications that it will permanently shutter its U.K. operations, effective at the end of the week. That includes laying off six full-time employees.

Apparently, British oenophiles are hard customers to come by these days.

The statement explains the closing: "The supermarkets’ stranglehold on the UK market proved too powerful for us to compete with and we have not experienced the anticipated growth rate."

For those keeping score at home, this is not the first time Lot18 has dropped the axe on a significant number of employees. Back in January, the luxe startup let go of 15 percent of its staff--its first stumble following an explosive expansion. At the time, Lot18 CEO Philip James told Betabeat, "A lot of this is a natural part of the way a business grows and evolves." Think he's currently eating--or perhaps swigging--his words?

Then, in May, Mr. James (in what a source called "a show of bravado") began straight-up paying unhappy employees to leave, following the shuttering of its gourmet and lifestyle brands. Seven employees were reportedly so dissatisfied that they took the money and ran. “Lot18 seems to be imploding and the only non-disgruntled employees there are the new ones," one source told us at the time. "Again, from what I hear you can cut the tension with a knife over there right now.”

Finally, just last month, came another blow to the epicurean e-commerce company. Lot18 once again announced sweeping layoffs, firing 11 of its employees and cutting its food and travel verticals. Mr. James chalked the move up to the fact that the company, which has raised a total of $44.5 million according to Crunchbase, got a little trigger-happy with their cash: "One of the perils of having a lot of money is it's easy to launch a lot of things," he told Betabeat.

The closing of the 4-month-old U.K. operation may be another attempt for the company to return to its "core offering...changing the wine business," as Mr. James told Betabeat back in June. And perhaps Lot18's platform--with its built-in compliance with local liquor laws--wasn't as disruptive in the U.K, which lacks America's patchwork 50-state market.

Lot18 will still continue to operate in the U.S. as well as France, where it acquired Paris-based Vinobest in December. We can imagine it's a little easier to build upon an already-established business than start from scratch.

Does this signal the end of Lot18's scaling back, or can we expect more layoffs at its U.S. operations? We'll keep an ear to the ground.

Lot 18 declined to comment.

If you have any more information, drop us a line: tips [at] betabeat [dot] com.

Additional reporting by Kelly Faircloth.

Mr. James. (Photo: Lot18)

New York-based Lot18 may have gotten ahead of itself there for a bit. The members-only flash sales site for wine, which raised a total of $44.5 million from investors, is down to 70 employees after a reorganization that was finalized internally today. The company is cutting 11 employees and eliminating the food and travel verticals that were launched in June and October, respectively.

While customers buying wine were also often interested in cheese and chocolate, Lot18 realized that the verticals didn't overlap much on the back end, and "just the distraction involved in building five things at once," was taxing for the company, founder and president Philip James told Betabeat.

"A startup has limited resources. We almost raised $50 million, but reinventing a multi-billion dollar industry and hopefully having an impact on the industry for the next 50 or 100 years takes a lot of focus," he said. "The business lines that we are shutting down in themselves are probably really good businesses. But as a startup, it's better to do one thing well, be a laser, do one thing better than anybody else."

He added, "One of the perils of having a lot of money is, it's easy to launch a lot of things."

Lot18 launched in November 2010 with the goal of providing members with highly-coveted wines at daily deal prices. The company scaled fast in the 18 months since it launched, poaching employees from competitor Gilt Groupe, moving into an idyllic office in Midtown (think "wine Fridays") and expanding into full-price oenophilic and epicurean offerings. "Lot18 is arguably one of the most powerful branding platforms," Eater wrote in August in a post that positioned Lot18 as the only serious wine sales competitor to Gilt. In December, Lot18 acquired Paris-based Vinobest and launched in Europe. At its largest, the company had more than 90 employees worldwide.

Lot18 gradually realized it may have swigged more than it could swallow. The company announced a 15 percent staff reduction in January and recently exhorted unhappy employees to quit. Today's cuts were distributed across the company and included a vice president of strategy, but no one at the executive level, we're told.

The market for wine is worth $40 billion in the U.S. and $150 billion worldwide, Mr. James said, which means Lot18 has plenty of room to grow without jumping into tangent categories. "The aim is just so that we can focus on our core offering, what we set out to do originally," he said. "The business was started to change the wine industry... we want to go back to doing just that."

Lot18 will continue to offer wine accessories like glassware, but its focus will be on curating and shipping wine. The company will "run the calendar" on its non-wine offerings, Mr. James said. He expects the secondary businesses will be phased out entirely in about a month.

Lot18 is about to hit a million registered members and now sources wines from 500 different wineries. The company did "several tens of millions of dollars of transactions" last year, Mr. James said, and subscriptions for the first quarter of 2012 are outperforming the same quarter last year.

By refocusing on just wine, Lot18 can become more efficient and make its product better for its core customers, Mr. James said. "We're learning things about our main category," Mr. James said. "We have to build a lot of stuff that's custom to this vertical."

By coincidence, Mr. James and his cofounder Kevin Fortuna received accolades today for a previous venture: music site Popdust, which just raised $4.5 million. Mr. James is no longer involved with Popdust, but Mr. Fortuna sits on the boards of both companies.

Mr. Patterson via @jetsetdrew

Gilt Groupe founder Kevin Ryan and chairman Susan Lyne spent Monday at the offices of Jetsetter, a deals site for luxury travel that operates independently under the Gilt Groupe umbrella. When the day was done, the Jetsetter board, where Mr. Ryan serves as chairman, approved a bold decision in response to an exodus of six senior executives and pervasive frustration among Jetsetter's nearly 90 employees. "More than half of us are looking to leave within the next month, at which point the business won't be operational," a Jetsetter employee told Betabeat last week, recounting "mutiny" among staffers.

"Drew [Patterson, the company's CEO and cofounder] is going to step down effective immediately," Mr. Ryan told Betabeat by phone this morning. In his stead, Mr. Ryan named Rob Deeming, Gilt Groupe's director of strategy and operations, and Mr. Ryan's former "chief of staff," as acting general manager of Jetsetter. Mr. Deeming had been in charge of Jetsetter's UK office, which was launched last September.

Mr. Ryan said the change at the top was motivated by turnover and morale. "Too many people have left. When you’re the CEO, you’re responsible for that. We’ve had a lot of communication over the last six months on this issue. At a certain point, for myself, you make a change."

Interviews with staffers, who spoke under condition of anonymity last week, painted the picture of a company hampered by Mr. Patterson's and CTO Colin Kroll's unwillingness to listen to and implement other people's ideas--at the expense of employees eager to grow the brand. The initiatives that the duo had put forward, such as a UK office, had flopped, sources said. "They talk to themselves and they think they're smarter than everybody, but they don't know how their customer works," said another Jetsetter staffer, referring to Mr. Patterson and Mr. Kroll. "We have great members, we want to keep them happy."

The way some employees tell it, morale started nose dive around the time Barry Herstein, the company's first-ever chief marketing officer, left Jetsetter. Mr. Herstein, a veteran marketing executive from PayPal, American Express, and the Financial Times Group, had actually been in consideration for the CMO gig at Gilt Groupe. When his appointment was announced last month, Mr. Patterson hailed the opportunity to "get the Jetsetter brand to a larger audience.”

But Mr. Herstein's tenure was short-lived. "Barry started on a Monday, didn't show up for work the following Tuesday and it was announced on Wednesday that he wasn't coming back," said one Jetsetter employee who agreed to speak under condition of anonymity. "He came in and realized all the things that were wrong with the company immediately."

Turnover and disagreement over direction are routine for a startup, but Mr. Herstein was the third highly-respected senior executive to leave Jetsetter this year, following Heather Leisman, the former VP of merchandising and operations and Stephanie Dolgins, the former head of marketing.

Sensing unease among the ranks, two weeks ago, Mr. Patterson broke staffers up into small groups to meet with top executives. Sources say the most successful session, in terms of open dialogue, was with Taleeb Noormohamed, a Canadian entrepreneur brought in to head up Jetsetter's "Homes" division. A week after the meeting, Mr. Noormohamed announced he would be leaving the company as well. "I definitely think Drew was threatened by how much people trust and respect Taleeb. His loss is a huge blow to hope," said one employee. The day of Mr. Noormohamed's goodbye party--for which Mr. Patterson showed up two hours late--employees found out that two more staffers would be leaving as well: Stuart Horowitz, VP of human resources, and Ivana Naeymi-Rad, director of engineering for business platforms. Five minutes after Mr. Patterson arrived at the party, hosted on the roof of the Gansevoort Park Avenue, employees started dispersing. "They all get marginalized, they all get frustrated and they all leave," a source said last Wednesday, adding, "There are about twenty people who are ready to walk out the door tomorrow."

Employees told Betabeat that revenue at Jetsetter was "flat," despite adding new venues, wondering why the board didn't act, despite the fact that there were "no positive signs coming from the company (including financial)." But the company vehemently disputed that claim on the phone. Jetsetter is poised to do close to $100 million in gross bookings this year, a spokesman said, adding that at yesterday's board meeting, Jetsetter reported 16 percent growth year-over-year for this quarter despite an industry-wide lag in the discount offerings. "The travel market is doing pretty well right now, which means there is less discount inventory available," noted Mr. Ryan. Individuals months may have been flat, but never a quarter, said the spokesman.

We had heard that Jetsetter was burning through $500,000 a month, but a company spokesman says Jetsetter has been cash-flow break-even since it was launched, which is unusual for ecommerce companies that normally require a fair amount of cash to build up. Jetsetter was capitalized with $1 million three years ago and hasn't raised since. After that initial raise, neither Gilt nor any outside investors have put money into Jetsetter, says the company. From an accounting perspective, however, Jetsetter still loses a few hundred thousand dollars per month, which is half of what it was six months ago. But the business should cross over into profitability next year, on schedule.

In terms of cash flow, said the spokesman, Jetsetter has been the single best business in all of Gilt.

The company also disputed employee statements that Jetsetter's UK office, one of Mr. Patterson's pet projects, had shut down. "That was a pretty big deal when we opened up another office," said a Jetsetter staffer. "And then to see it fail so quickly was pretty demoralizing for everyone. There’s still some people over there, but we’re no longer really operational in the UK. They’re more there just for the sales side." Jetsetter, on the other hand, says the UK has not closed down and claims the company is in the proces of hiring five more people. Currently, however, the UK office is just there to source deals for the US. Originally, Jetsetter had hoped for an independent UK team to create a business overseas, but found it difficult to get members. The last entry from Twitter account @jetsetter_uk was February 1st.

According to one employee, during a meeting of twenty staffers, Shaun Stewart, VP of sales and operations, suggested that Jetsetter start copying their competitor, Tablet Hotels. The source said Mr. Herstein, the short-lived CMO, asked why Jetsetter wouldn't stick with what it's good at it--beautiful pictures and editorial content--over copying someone else. Jetsetter used to showcase "quality products," said the staffer, "now it's crappy hotels."

Mr. Ryan offered praise for Mr. Patterson's willingess to try new things, contrary to what we had heard from employees. "When Drew came up with the idea of selling full-price hotels a year and a half ago, no one at Gilt had done this and no one in the flash sales space had done this," said Mr. Ryan. "Now it’s 40 percent of our business." Jetsetter also plans on announcing a number of new hotel chains into its offering this coming month, including the recently added Mandarin Oriental. He also spoke highly of Jetsetter's product, especially as compared to its competitors. "The product itself is fantastic. I actually think it’s one of the best products we have at Gilt. It’s won lots of awards. I’m sitting here in the conference room looking at the 2011 Webby award," he said.

"Most of our competitors like RueLaLa or Haute Look that entered the travel space two years ago, either have dropped out or have small businesses," said Mr. Ryan. "Neither one is doing even $15 million in revenue. Ideeli same thing. We all started at about the same time. We have a bigger travel flash sales business than the three of them combined." He also pointed out how a European competitor called Voyage Privé tried to enter the U.S. market a year ago, but "dropped out because they couldn’t compete with Jetsetter in this market."

Ultimately, however, Mr. Ryan's decision to replace Mr. Patterson, a former VP of marketing at Kayak.com, was motivated by the fact that, "There’s been more management turnover for a variety of reasons in a small company than there should be. There’s always some unhappy people everywhere but I think the internal cooperation within Jetsetter is not great between various departments." During the breakout sessions with senior executives a couple weeks ago, Mr. Patterson's staff also blamed low morale on lack of communication, which one source called merely superficial. "It was still a top-down movement of them telling us what was wrong with the company, rather than us telling them what they needed to change," said the source. Mr. Kroll, Jetsetter's CTO who led alongside Mr. Patterson, will be staying in place.

Mr. Ryan said Jetsetter has not yet begun a search for a new CEO. Considering that Voyage Privé is about a $400 million business in Europe, he said, Jetsetter could be expected to approach that as well. "The person in charge, we need to feel comfortable that they can scale this into an international large travel business. It’s too early to learn if Rob is that person," said Mr. Ryan. "But we'll do a search. And my guess is within six months, we’ll have someone new in here from a travel background."

We will be covering this story as it breaks. If you have information about Jetsetter, please contact ntiku@observer.com.

(tumblr.com)

Local blogging platform Tumblr has raised a staggering $125 million in venture capital. Tumblr is now hosting more than 53 million blogs with images, video and a complex system of duplication via reblogs, all for free, so the company needs the cash. "In about six months, the word 'Tumblr' will eclipse 'blog' in Google popularity," wrote the web comic artist and statistician Randall Munroe of XKCD.

Welcome to the big leagues. And at its size, Tumblr's investors are keeping a closer eye on the goings-on at the wildly unprofitable startup. After years of leaving Tumblr's magical fairyland largely to its own devices, two recent major changes suggest the company may be feeling pressure from investors (and its burn rate).

John Maloney previously ran the forum for Upper East Side moms UrbanBaby, where he employed David Karp. Four years ago, Mr. Karp then hired Mr. Maloney to serve as president and resident adult of Tumblr. Last week—late on a Friday, naturally—Mr. Maloney announced he is stepping down from the company.

"I told the team and board this week that it’s time for me to transition away from running day-to-day operations. It’s the right time for me and a good time for Tumblr. We’re in great hands with David and the excellent leadership team we’ve built. The company is filled with amazing people," Mr. Maloney wrote obliquely on his personal Tumblr.

He will spend more time with family and "learn a bunch of new things," he wrote.

The news of Mr. Maloney's resignation comes after Mr. Karp announced that Tumblr will start selling a form of advertising this week--a revenue option the founder had hoped to avoid. The words of early Tumblr investor Fred Seibert in late 2010 ring prescient: "You're going to have to prove to somebody that you're really worth the money they gave you," he told Mr. Karp at the time.

To its credit, Tumblr has fixed the downtime issues that plagued the service for months and its controversial fashion director Rich Tong is now gone. But the popular blogging service, which has more than half the users MySpace did at its peak, has yet to prove it's worth the money investors gave it.

"One could guess from these developments, and their open-ended question marks, that Tumblr's board has finally decided to start calling shots," a source Gchatted Betabeat over the weekend.

Mr. Maloney did not immediately respond to a request for comment.