Category Archives: Web 2.0

Google Fast Flip Represents Experiment Rather than Watershed Breakthrough

Internet bloggers are atwitter today over the unveiling of Google Fast Flip, a news-browsing service that tries to bring to the web the serendipity and intuitiveness of browsing and reading printed media.

Some observers are portraying Google Fast Flip as a significant development, if only because Google is sharing revenue with the limited number of newspaper publishers and other content providers participating in the initiative.

In actuality, Google Fast Flip is an experiment, for the participating newspapers and magazines as much as it is for Google. Everybody is trying to figure out what sorts of content-delivery services will be attractive to readers while providing a business model that satisfies both Google — which already runs the popular Google News service — and the publishers that provide news content.

While Google says Google News is meant to provide a constantly changing array of breaking news, it is positioning Google Fast Flip as an online recreation of the offline experience of leafing through articles in newspapers and magazines.

I like some of the usability aspects of Google Fast Flip, especially for publications I read thoroughly. Nonetheless, I see it as a complement rather than as a replacement for Google News and other comprehensive search-related news sites. What stands as both a strength and weakness of Google Fast Flip is that is presents material from only a limited number of publications.

It’s also available on the Google’s Android handsets and the Apple iPhone. As much as Google would like Android to prosper in the marketplace, it realizes it cannot ignore Apple’s market clout — and growing market share — on mobile devices.

Obama’s Facebook Warning Didn’t Go Far Enough

President Obama gave students a warning about Facebook yesterday. It was wise counsel, but he should have provided a stronger admonition.

Let’s put aside for a moment whether what one posts on Facebook as a youth might come back to haunt him or her in later years. For the record, if your earlier Facebook post relates to an action that was criminal, egregious, or patently unethical, you can be sure it will come back to haunt you like Banquo’s ghost. People, and the times in which they live, won’t change so much that what’s glaringly wrongheaded will become socially acceptable within the span of a few short years.

In the big picture, that’s a secondary concern. A bigger worry — one that should trouble Facebook users more than whether what they post publicly on the site will eventually result in personal or professional grief — is whether Facebook can be trusted with anything that is stored on its servers.

Facebook is a business. Its investors have piled prodigious amounts of money into it in expectation of an obscenely profitable exit. Facebook, because of the way it is constructed as a business, can only achieve that result if it trades comprehensively on the personal, private information that its subscribers have entrusted to it.

Some will counter that privacy no longer exists in the Internet era. Regardless of whether that’s true, Facebook is a new type of Internet beast, designed expressly to make private information a public commodity.

Unlike instant messaging, email, even web search, Facebook’s sole business value turns on its capacity to trade on the personal, private data of its subscribers. I would go so far as to suggest that the full realization of its business model ultimately depends on how thoroughly it mines every last scrap of personal data that its subscribers supply.

The loss of privacy was an unintended consequence of preceding Internet technologies. In the particular social-networking sphere that Facebook inhabits, the stripping away of personal privacy is its raison d’etre.

Conjecture on Private-Company Valuations Just Doesn’t Matter

Venture capitalist Fred Wilson isn’t enamored of all the speculative writing on blogs about the estimated market valuations of private companies.

One problem, which Wilson cites, is that private companies don’t have valuations. They’re not public, their shares don’t trade on markets, they frequently don’t have business models or even revenues, and they’re often still growing into their corporate exoskeletons.

That means ascribing valuations to such companies is nothing more than a fantasy parlor game. There’s no way to be right or wrong in one’s opinion. Only the market, comprising buyers and sellers, can decide the valuation, and the market hasn’t been given the opportunity to deliver its verdict. That won’t stop pundits from engaging in hypothetical discussions and debates about whether Facebook is worth $10 billion or Twitter $1 billion.

Obviously these arguments have no practical utility. Until one of these companies goes public or is acquired, no known value can be attributed to any of them.

The whole hypothetical exercise seems to drive Wilson up the wall. As an investor in Twitter, he’s concerned that all the external conjecture about the company’s putative value might distract the firm’s employees from what they ought to be doing: building a business.

Says Wilson:

But I think all the focus on what a company is worth can be bad. These companies are private for a reason. Most of them aren’t mature enough to be public companies. They often don’t have full management teams and some don’t even have revenues. The focus inside these companies needs to be on building the company, the product, and the business. And endless discussions about what their company is worth can be terribly distracting.

I saw this in action back in the late 90s when a bunch of our portfolio companies went public before they were ready. The employees spent too much time focused on the stock price and too little time focused on the business. Many employees starting counting their net worth in stock that was not liquid and eventually was worth pennies on the dollar of what they thought it was worth.

I understand his concern. I can appreciate why he thinks all the idle talk about private-company valuations might be deleterious to his investment in Twitter.

At the end of the day, though, he and Twitter need to focus on what they can control. They shouldn’t worry about things they can’t control — and they can’t control what others will say about them. People will speculate on lots of things, including the imagined valuations of private companies. They’re going to do it, and Wilson needs to get over it.

What he and the folks who run Twitter can do is ensure that the company’s executives, managers, and other employees remain disciplined and focused. If they fail to maintain their focus and execute their plans, they’ll have only themselves to blame for any failure that results.

Protecting Yourself from Scams on Facebook

If you must use Facebook — and I personally advise against it every chance I get — you ought to be extremely careful about how much personal information you share with the social-networking site’s burgeoning masses of subscribers.

Depending on how much information you choose to disclose about yourself on Facebook, you could become the victim of fraud. As Facebook continues to grow, the scams will proliferate and get worse.

It is possible to use Facebook while limiting your exposure to extortion, fraud, and identity theft, but you cannot and should not rely on the site to take those precautions on your behalf.

The first step, as CNET News’ Dennis O’Reilly explains, is to edit your personal profile. You’ll want to eliminate any personal information that could be exploited for criminal purposes. You are wise to err on the side of caution, so if you’re unsure about a particular detail or revelation, delete it.

When that’s done, you’ll want to follow O’Reilly’s example and modify your Facebook account’s default privacy settings, which are intentionally lax to facilitate information sharing.

It isn’t Facebook’s fault that online criminals are gravitating to it as a venue for exploitation of the trusting and unwary.

Still, Facebook should give serious consideration to devising and implementing more stringent privacy settings for the patrons who have made it an increasingly attractive target for prospective advertisers and crooks alike.

Russian Investor Wants More of Facebook

Digital Sky Technologies (DST), Facebook’s Russian investor, wants to own more of the social-networking sensation.

From the Digits blog in the Wall Street Journal:

The firm (DST) just finished spending $100 million to purchase current and former Facebook employees’ shares of the company, on top of a $200 million direct investment into the social-networking site earlier this year. Now DST, known for its investments in social-networking sites in Russia, Poland and the Baltics, has approached a number of Facebook shareholders seeking to buy more shares, according to several people familiar with the conversations.

After wrapping up its official tender offer, which was closed this week, DST held about a 3.5% stake in Facebook. Two people familiar with the matter said DST has suggested it wants to spend at least $100 million more on Facebook shares.

The Russian investor seems to want to own more equity, and presumably more influence, in Facebook. We don’t know what long-term strategy DST has in mind, but it’s clear that it would like to possess more than a token interest in its American social-networking investment vehicle.

Unjustified Attack on Facebook “Mercenaries”

Sarah Lacy seems perplexed and indignant that current and former Facebook employees would sell their common stock to Russian investment group Digital Sky Technologies. The Russian investors planned the share buyback when they put down $200 million in exchange for preferred shares of Facebook earlier this year.

In aggregate, with preferred and common shares taken together, Digital Sky Technologies will own about 3.5 percent of Facebook. The terms of the stock buyback value Facebook at about $6.5 billion.

Let’s get back to Lacy’s criticisms, though. I don’t want to take any of what she said out of context, so allow me to excerpt directly from the BusinessWeek column in question. “The Mercenaries in Facebook’s Midst“:

And yet a flood of employees rushed to sell their stock for a price that values the company at just $6.5 billion, never mind that the buyers of those shares are the very ones who invested in Facebook at a $10 billion valuation the month before the tender offer was made. In May, Facebook said a Russian company called Digital Sky Technologies would buy at least $100 million of Facebook common stock from current or former employees.

I’m pretty certain that a few years from now, when Facebook does go public, I’ll be writing about the $100 million deal that gave Russian investors a chunk of Facebook on the cheap, and the boneheaded employees who gave up too soon.

I seriously question whether Facebook will IPO for anything close to $10 billion. Facebook still hasn’t figured out how to fully monetize its assets without alienating its subscribers. At the end of the day, let’s remember, Facebook is nothing without subscribers, those people willing to trade their personal, private information for the right to frequent and socialize on Facebook.

But Facebook must exploit them — that is, it must market and sell their personal, private data to advertisers and others, sometimes explicitly and sometimes not so explicitly — to make money for itself and its investors. Tricky, that. It’s a difficult dilemma. I wouldn’t want to be counting Facebook’s money before it’s been made.

But it’s Lacy’s next statement that’s truly provocative:

But in the meantime, I have a more immediate concern: What has happened to the startup work ethic in Silicon Valley? Time was, the region was teeming with believers—be it believers in a company or believers in the sometimes naive, lottery-ticket hope that options would make them billionaires. People who work at the most highly valued startup in Silicon Valley and rush to sell for a smaller valuation—just as an IPO is starting to look likely—aren’t believers. They are mercenaries. What’s next? Giving up options altogether for a bigger paycheck? . . . .

. . . . Silicon Valley was founded on the belief that stock options were worth something—and that something was a big windfall at an exit, when the whole company watched that ticker crawl across the Nasdaq for the first time, calculated their paper net worth, and popped open the champagne. Does it always work out? Of course not. But that is why it’s considered high risk, high reward. How has this gotten so lost on people? Are we just so jaded that we can’t believe in promises anymore, even at a company like Facebook?

In the above excerpts, Lacy repeatedly invokes the words “belief,” “believe,” and “believer(s)” Those are words typically more associated with faith, religion, and even cults than with the hard-headed world of business. In business, trust and belief must be earned, by employee and employer alike. When one joins a company, one doesn’t usually consent to treat the founder as if he’s Jim Jones or L. Ron Hubbard.

It should be obvious: Businesses exist to make money. Their primary purpose, marketing palaver aside, is to make money. They are investment vehicles, not churches. Everybody who joins a company, which is a business, needs to enter it with his or her eyes wide open.

When one joins a company, one is making an investment — of time, of opportunity, of value. The employee isn’t the only one benefiting from the exchange. The employer benefits, too.

Everybody in that exchange is looking out, first and foremost, for number one. That’s just the way it is. Sometimes, in the spirit of enlightened self-interest, employers and employees strike arrangements that provide sustained mutual benefit. But those arrangements need to be predicated on logic, reason, and, yes, calculation, not on misplaced religious fanaticism.

Finally, have you noticed that Lacy’s observations in the above excerpt are rooted in nostalgia?

She’s talking in the past tense about a Silicon Valley that doesn’t exist anymore. Stock options in startup companies might have been worth something — even something potentially substantial — back in 1999 or 2000, but they’ve been worth less and less in fewer and fewer circumstances as the years have advanced. We’ve reached a point now where the economy has cratered, IPOs are as rare as unicorns, and the prospect of lucrative exits has diminished greatly.

People, the employees at Facebook and other companies, aren’t jaded, Sarah. They’re living in the real world, the way it is today. They can’t afford to live in Silicon Valley’s past. They have to do what’s right for them today, in a tough economy, in a world that bears scant resemblance to the halcyon days of weekly IPOs, bursting beer fridges, and champagne Fridays.

If you ask me, the Facebook employees who took the Russians’ money and sold a portion of their Facebook equity made rational, well-reasoned decisions. They looked at what was offered, considered their options, and chose to sell some shares for a certain gain rather than to keep them for a future payoff that might be better, might be worse, or might never come at all.

They’re employees at Faceboook, after all, insiders who presumably have some insight into what the company is doing and how it is doing.

I don’t begrudge them their choice. It doesn’t make them mercenaries. It makes them realists.

What Happens to Tech if Consumer Spending Doesn’t Rebound?

What happens to Silicon Valley, and to the technology world in general, if consumer spending doesn’t bounce back?

Despite hopeful pronouncements from economists and business media about a nascent economic recovery, American retailers still confront tapped-out consumers reluctant to spend the meager discretionary income they have at their disposal.

When they’re not being optimistic, economists will inform you that consumers account for 70 percent of expenditures in the US economy. In other western economies, the percentage of consumer spending is closer to 65%, which is still a lot.

Think intently about that reduced retail spending and consider that it might persist for a long, long time.

I hate to be the bearer of bad news — in certain societies, that distinction can occasion nothing but grief — but we’re not in a standard, factory-issue recession.

There’s something bigger happening here, and not everybody has recognized it, though consumers, to their credit, haven’t bought the blandishments from on high that it’s okay to go back to the free-spending habits that contributed to (but did not create) the bubbles of yore.

For years, the world worked on the basis of US consumption of Chinese-manufactured goods. The Chinese would underwrite that consumption by buying US treasuries. Banks kept the party going by extending cheap credit to everybody that needed it and many that didn’t. The party seemed as though it would go on forever.

But nothing lasts forever, as Roxy Music told us in “The Same Old Scene.” Even credit-fueled bubbles end, it turns out. And, as at the conclusion of many parties, nearly everybody wakes up the next day with a severe hangover.

American consumers cannot keep the party going. They are financially strapped, with less income than they had before, less job security, reduced-value assets in the form of securities and real estate (including their depreciated homes).

Credit doesn’t come easily anymore, either. Banks have become more stringent in lending policies. Even if many consumers wanted to spend, they wouldn’t be able to get the money to do so.

As noted above, this situation will be with us for a long time.

Here’s a question to ponder: With the US consumer no longer able to fuel economic growth with his spending — and with European consumers unlikely to pick up the slack — who’s going to buy all the goods that manufacturers will churn out to restock depleted inventories?

For the time being, it won’t be Chinese consumers. They’re not ready to take the baton. Even as they gradually assume that mantle, they’ll be inclined to buy Chinese-made goods rather than those made in America or Europe.

So, we find ourselves in an uncomfortable global economic transition, not a typical recession. We live in interesting times, and, as the Chinese proverb suggests, that’s not always a good thing.

What does it mean for the Valley and for information technology? It probably means all bets are off regarding a revival of IPOs on a grand scale. It probably means venture-capital spending will remain depressed and highly selective. It also means exits, even by acquisition, will be few and far between.

What’s more, many Web 2.0 companies predicated on robust spending by the American consumer will become lost causes. Paid content directed at consumers also will fail. (Hear that, Rupert Murdoch?) Consumers will be able to pay for their Internet connections, but they won’t have enough spare change to spend on for-pay online news content.

As unfulfilling as they have been for countless content purveyors, advertising-based business models will be the only game in Web 2.0 town. Consumers won’t have the discretionary income to spend on content. Regrettably, advertising spending will be constrained by the diminished pay off from enervated consumer spending.

It’s a world of diminished expectations.

There’s always opportunity, though, and one that I definitely see ahead is for anything that helps businesses and consumers cut costs, become more efficient, and do more with less. Just as so many technology companies have been slashing costs, often by jettisoning employees, consumers will be looking to reduce their overheads, too.

For the time being, as top-line fortunes recede from immediate view, the world will become all about reduction of operating expenditures.