Facebook at 10: I Expect More

Posted on February 4, 2014 by jyarmis

Today should be a celebration. Facebook has reached the age of 10. It connects over a billion people. However, as active as I am on Facebook and as much value, and fun, I find from it, I can’t help but be terribly disappointed. I suppose it was inevitable. Monetization (and going public) are harsh mistresses. So, what’s the source of my disappointment? I wanted the social web, not a social site.

I hate to say I saw this one coming. When Facebook went public, listed right there under “risks” in its S-1 registration statement was a note that people conducting social activities on other web sites represented a risk to their business. But I want that to be their business.  I want my social graph to follow me everywhere.  Bringing that graph across all sites should enable all sorts of functionality and value. The problem is that this represents value for us, not Facebook. Monetizing an API is a tough business, certainly more difficult than taking a billion people and monetizing them through advertising. Thus, while Facebook offers Facebook Connect and some sites try to integrate in rich fashion with Facebook and your social graph, this is nowhere as ubiquitous as we all want it to be. And that’s because, plain and simple, Facebook doesn’t make any money that way. The realities of business have hit the ideals of connecting the world’s people. We want to connect them…on our site.

It’s a shame, really. We all want a social web. It would transform our experience, for the better, on most of the web sites we visit on a regular basis. But we’re not going to get that from Facebook. Instead, we get sponsored ads and brand posts and shockingly mis-targeted sidebar advertising. Do we have any chance to get that and, if so, where is it going to come from? Interestingly, we might actually see this connected social web. First, Google and Google +. Don’t laugh. Yeah, no one really uses it. Or do you? Google is actually insinuating Google + into a variety of activities (YouTube, App store, even search) in a way that pushes the social web site to the back but transforms your ordinary activities with social connections. This is a vastly underappreciated move on Google’s part. The other potential? IBM. Again, don’t laugh. Some years ago, fearing Facebook’s control of the social graph, Google launched an initiative called OpenSocial. In typical Google fashion, they lost interest quickly. Fortunately IBM understand the power of an open social graph connecting disparate systems, within and across the enterprise as well as with customers. Thus, IBM has assumed stewardship of the OpenSocial initiative and is actually devoting real resources to it. Starting from the enterprise out is not always a sexy approach to software distribution but it can actually deliver much more complex solutions albeit in longer time frames and with less visibility. But don’t disregard OpenSocial.

Facebook at 10. A remarkable accomplishment. A powerful force. But most of all, a perversion of the real social vision. The next 10 years will be much more exciting.

 

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The New York Times Paywall: New Coke?

Posted on March 25, 2011 by jyarmis

So, after just retweeting several NY Times stories and thinking “take that, paywall,” I’m left wondering whether there’s a new Coke thing going on.  Does anyone believe it’s possible that the whole paywall thing is actually a bogus plan?

For those of you who don’t know, the New York Times is instituting a paywall whereby you can read a limited number of Times’ stories in any given month but to get more, you have to pay.  There are a few loopholes to the scenario, however.

  • If you’re a subscriber to the dead-tree version of the newspaper (and I am), you have unlimited access via the web or mobile.
  • If you come to an article via a social media link (e.g., Twitter, Facebook), you can access the article without regard to how many other articles you’ve already accessed.

Already there are innovators out there, coming up with ways around the paywall.  One Twitter user set up a feed that Tweeted all of the articles in the Times so that you could find all relevant links in one place.  Others are setting up Facebook groups.  The Times has responded by asking Twitter to take the feed down, although their objection was based on trademark misappropriation (the name included the Times’ name) and not on the basis of its content.  Of course, that’s the Times’s only recourse here.  It will be easy to reconstitute the feed via a defensible (and, I’m sure, highly retweeted) feed.

So, is this part of the Times’s strategy?  They knew the holes existed.  They knew people would exploit them in innovative ways.  So now, people are probably Tweeting Times’ stories way more than before.  I’ll bet their page views go up after the installation of the paywall.  So they’ll get some minor subscription money (from the suckers) but more importantly, they’ll preserve a few dead-tree subscribers (who now think they’re getting a better deal) and they’ll grow their page views because it’s now the forbidden fruit.

 

Are they that smart or devious?

 

 

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Microsoft Tries to Derail the Barnes & Noble Juggernaut (!?)

Posted on March 24, 2011 by jyarmis

In the legal morass that is Android comes the latest news that Microsoft is suing Barnes & Noble, alleging patent infringement.  Think about the surface absurdity of that one.  Microsoft suing Barnes & Noble.  Even The Onion hasn’t contemplated this scenario.  So, what’s really going on here.

At a macro level, here’s what’s happening:

  • These kinds of patent lawsuits are so common that I’ve almost stopped looking at them altogether.  Usually it goes like this:
    • Someone sues someone else.
    • The someone else counter-sues.
    • The two companies exchange patent cross-licensing agreements, usually with one side or the other having to kick in some cash.
  • There’s a slight twist to the whole Android scenario, again though one that’s not uncommon.  Most of these patent lawsuits have focused on Android licensees and not the deep-pocketed Google.  It only makes sense to go after the weaker players, albeit ones with sufficient funds to pony up.

What are all these people suing in the Android space trying to accomplish?  It’s real simple.  If you’re trying to sell an operating system into a market where Google is giving it away, you need to make the OS appear not to be free.  In other words, you may not pay for the OS but by the time you factor in legal costs, your free OS all of a sudden isn’t so free.  Somewhere along the line, Google is probably going to have to ante up to help its partners by resolving all of these patent infringement issues.  It probably means Google’s going to have to write a check.  The good news:  they’ve got $34.9 billion in cash on hand and are printing more each quarter.  So much for the chilling effect on Android licensees.

What’s particularly interesting about the Microsoft/Barnes & Noble case is that presages interesting competition in the tablet marketplace.  Why should anyone be worried about Barnes & Noble or, by extension, Amazon?  The Barnes & Noble Nook e-reader actually runs on Android.  In effect, they’re selling a specialized Android tablet for $249.  How can they do that when the rest of the Android tablet marketplace is horribly overpriced as I’ve recently blogged?  Welcome to the new world of ecosystems and razors and razor blades.  Amazon and Barnes & Noble can sell these devices at low (or no) margin because the economics of incremental margin on the razor blades (books and other digital content) is so compelling and predictable that it pays to seed the market with devices.  That’s another reason why Apple, asides from supply chain efficiencies, can sell the iPad so competitively.  It can count on a reasonable income stream from the AppStore while in the Android space, those margins go to Google.

Yes, I know that the Nook and the Kindle are not general-purpose tablets.  Today.  But the color Nook is pretty darn close.  The Wall Street Journal’s Brett Arends even recently told readers how to turn their Nooks into tablets.  He overstated his case to make a point:  Barnes & Noble can do this easily and likely will.  If not, they deserve to follow Borders into bankruptcy.

Netting it out:

  • Google is likely to have to share some of its profits with its ecosystem to cover legal exposures.
  • Google is likely to have to share some of its app store revenues with partners.  Otherwise, the situation with competing app stores (already a fracturing standard) is going to get (much) worse rather than better.  They need to do this one quickly.
  • In other words, Android tablets need to get cheaper and Google will have to share its app and advertising revenues to make that happen.
  • Players like Barnes & Noble and Amazon can become strong players in the tablet marketplace because they have the economic model and ecosystem to compete with Apple.  Selling hardware alone is not much fun these days, and is only going to get worse.

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I’ve Come to Save Newspapers and Magazines

Posted on March 17, 2011 by jyarmis

My friend Larry Smith is one of the most thought-provoking people I know.  We’re both members of a group called the Internet OldTimers and in a recent exchange there, he talked about being a subscriber to the print edition of The New York Times.  I’m also a subscriber to the dead-tree version of the Times and Larry set me to thinking about why I still subscribe to the newspaper.  What do I like about the print version and how is it different than online?

  • Editorial judgments are more clearly manifested.  Placement means something as does inclusion.  Online, placement is quickly ignored and all stories look the same.  And with unlimited space, there’s no judgment expressed via inclusion.
  • Layout matters.  A glance at a section front page tells me a lot in one glimpse and the reading of 50 words.  That’s much less the case online where layout is so blindingly similar from story to story, site to site.
  • Sections matter.  As I move from section to section, my mindset clearly changes.  Online is a much more random journey with few boundaries and as a result, either the mindsets don’t change very much and/or they’re jarring when they do.
  • The delivery mechanism is well-suited to the use of the product.  Paper is wonderfully portable.  I read it continuously from the bed to the bathroom to the kitchen to the train.  Online is bumpy and with few exceptions I don’t have a seamless experience across devices (although there are some interesting initiatives in this regard and I have high hopes for it once we finally bury this notion of the “three screen experience” to be replaced by the “integrated any-screen experience”).
I like what some publications are doing on the iPad (e.g. Sports Illustrated and Autoweek) and what the Times itself is doing with its Google Chrome app.  (I’m not mentioning Rupert Murdoch’s The Daily because first, I haven’t seen it and second, I don’t like talking about Murdoch.)  The Times’s Chrome app much more closely represents the newspaper experience.  It’s familiar and preserves the assets I mentioned above and brings some additional value to online via contextual linking.  But it doesn’t go nearly far enough.
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More importantly, I think what the good iPad publications show us is that the online news experience is not a newspaper or magazine brought online.  It has to be a multimedia tour de force that brings new elements to the publication.  It combines the best of newspapers with the best of television with the best of the Internet.  We’ve gone through this with the addition of other media.  Radio wasn’t merely reading the newspaper.  TV wasn’t merely adding pictures to the radio.  The great Internet “publication” will combine elements of all that has gone before it while adding those items that are uniquely Internet, including broad linking, commenting and sharing, creating an immersive, social experience.
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Now that I’d pay for.

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Facebook and Amazon Change the Streaming Video Marketplace

Posted on March 14, 2011 by jyarmis

The entries of Amazon and Facebook into the streaming video marketplace stand to change the economics and dynamics of watching video online.  While shortcomings and constraints will slow their impact in the near-term, make no mistake about it:  the economics and approaches have changed.

It’s easy to dismiss these solutions in the short-term.  No, Amazon doesn’t have the library of a Netflix.  No, the Facebook experience isn’t optimized for long-form video consumption.  If, however, you dismiss these two based on these shortcomings, you’re missing the point.

Let’s look at Amazon first.  For Amazon, this is a shrewd, and necessary move.  Amazon Prime, which offers free two-day shipping for all Amazon purchases for $79/year, is increasingly irrelevant as Amazon’s book sales move to digital.  By the middle of last year Kindle sales on Amazon surpassed hardcover books, by the four quarter that extended to paperback books as well, and on Christmas day Amazon sold more e-books than physical books combined (although that number may certainly have been skewed by the number of people opening Kindles as presents that day).  Thus, it is clear that Amazon had to do something to enhance the value of Prime for its most valued customers.  Of course, Amazon sells much more than books so Prime still has considerable appeal even for those who consume their books digitally.  Amazon wins either way.  If you get value because of the free shipping offer, the availability of streaming video for no extra cost is a compelling value-add.  And if you’re evaluating the competing streaming video options, Amazon is cheaper than Netflix ($100/year) and offers more than just streaming.  (Here’s an interesting analysis of the customer overlap between Netflix and Amazon.)  What’s most notable about Amazon’s offer:

  • It’s cheaper than the market leader, without any other considerations.
  • It’s bundled with other value, making it appear free to a significant range of customers.

Facebook’s entry is much more limited and complex but longer-term perhaps more impactful.  Much more limited.  A single movie at launch, The Dark Knight (incidentally, one of my 10 favorite movies of all time).  But this one is much more potentially transformational.  So what’s interesting about Facebook’s entry here?

  • While initially a standalone experience (and probably a sub-optimal one at that), given its market position I expect Facebook’s movie-viewing experience to rapidly evolve to a social experience.  From a marketing perspective, that talks to the viral potential.  More importantly, though, from a viewing experience, you could envision how Facebook could leverage its platform to increase the social elements in movie viewing in both synchronous and asynchronous fashions.  For instance, you might not only chat with other friends in real-time while you’re both watching a movie, you might also see the comments from other friends appear at the same point in the movie even if they’re not watching it at the same time.  Facebook can significantly shape the social movie viewing experience in a way that doesn’t exist today.  Twitter leads the real-time synchronous market today (e.g., we all Tweet during the Academy Awards) but the non-real-time and asynchronous markets are very much in play and Facebook can lead the way here.
  • The role of Facebook Credits in paying for movies is very interesting.  I have long been a believer of “count down” models vs. “count up.”  A count-up model is one where you pay for each purchase.  Every transaction counts up the amount of money you’re spending on the particular activity, and thus is an individual purchase decision.  In a count-down model,  you have a pool of credits you can “count down” against.  In your mind, the money is already spent and it’s just about how you’re going to spend the money.  With Facebook Credits, users will have a variety of ways to spend their currency (games, movies, other products and services) and a variety of ways to acquire it (you can even buy gift cards at Target).  This will make it easy to make an impulse buy of a movie (whereas Netflix and Amazon at their price points are considered purchases).

For different reasons, the entrance of Amazon and Facebook into the streaming video marketplace change the landscape.  The net result is that the marketplace has new competitive requirements.

  • Movie viewing alone may not be enough to sell a movie service.
  • The social experience of watching a movie online is in its infancy but is likely to change very quickly.
  • The payment models for video consumption are expanding, and will include:
    • Subscriptions
    • Virtual payments
    • Bundling with other services

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Twitter: How do You Monetize Infrastructure?

Posted on February 20, 2011 by jyarmis

In case you missed it, there’s a fascinating battle going on over in Twitter-land.  For much of the weekend, some of the Twitter clients from Ubermedia, the leading provider of Twitter clients, were shut down for unspecified violations of Twitter terms of service.  First of all, who is Ubermedia?  Ubermedia delivers Twitter client tools including Echofon and Twidroyd, and just this month they announced the acquisition of Tweetdeck.  The net result is that approximately 20% of Twitter traffic flows through Ubermedia clients.  That’s why this skirmish is so interesting.  Ultimately it’s about who gets to monetize the Twitter platform…and Twitter’s not in the pole position.

Much of my recent conversation here on this blog has related to Apple and the control it exerts over its ecosystem and its ability to extract revenue and profit from the “partners” in the ecosystem.  Give Apple credit.  They figured out how to build an infrastructure and an ecosystem whereby they profit handsomely and where they further profit from the infrastructure investments of others.  Look at what Apple has done to the rest of the wireless industry.  With just 3% of the handsets by volume, Apple is generating 2x the profits of the rest of the handset industry combined.  How do you think AT&T feels about that?  And how excited is Verizon to turn over some of their profitability to Apple?  The carriers are in a desperate struggle to be more than just “dumb pipes,” having ceded value to the platform and client providers like Apple, Google and RIM.

So what does this have to do with Twitter?  For Twitter, the situation is more dire than for the cell phone carriers.  At least the carriers have a direct revenue source for their infrastructure, paid for by the consumer (even while they’re fighting over what portion of the revenues generated should be theirs).  And for many years, their capital expenditures were covered by the fees they were extracting because it’s only recently that the platform providers have exploded onto the scene to compete for ecosystem dollars.  Twitter, by contrast, has no financial relationship with anyone in its ecosystem and has largely funded its infrastructure on its own.  (Well, on the dollars of its venture investors.)

Meanwhile, on the backs of this capital investment and Twitter’s open approach, a whole host of services have emerged on top of and around the core Twitter feed.  This is what makes Twitter interesting.  The raw feed itself is rather overwhelming.  It’s only through all of these third-party tools that Twitter starts to become the invaluable resource that it is to so many of us.  And these are where the monetization opportunities come in.  Google built its multi-billion dollar empire on search, selling keywords next to organic search and delivering contextual advertising via its “clients,” like Gmail and Google Docs.  Similarly, Ubermedia can build quite a nice advertising business via contextual advertising alongside the Tweetstream it delivers via its Twitter clients.  And what does Twitter get?  A hearty pat on the back.  Sure, Twitter can sell advertising too but without the contextual knowledge that comes from the client tools, Twitter’s advertising is as likely to be intrusive as it is to be contextual.

Thus, Twitter fires a shot across the bow of Ubermedia, the company best positioned to compete for the dollars Twitter believes to be rightfully theirs.  Yes, there were trademark infringement issues, which were quickly resolved.  This brouhaha was not about that.  This was about the race to monetize Twitter, a race the core platform provider is falling behind in.

Where will this end up?  I’m sure there are some pretty heated conversations going on between Twitter and Ubermedia.  It’s a delicate dance between the two.  Twitter can’t afford to scare away its ecosystem that makes the infrastructure valuable.  At the same time, punishing their end users is never a good idea, especially such a fickle crowd as tech early adopters.  Twitter’s in a strong position, but it’s not unassailable.  However, Ubermedia also now has a pretty good idea of what it means to be on Twitter’s bad side.  Twitter could put them out of business tomorrow.  Thus, the two parties have the strongest of all possible reasons to figure out how to economically co-exist.  I think in the coming weeks and months we’ll see some joint announcements from the two about their plans to monetize the Twitter platform.  Consider this, then, the first negotiating ploy.  “I own your traffic.”  “Well, I can shut that traffic off.”  There’s a lot at stake here but there’s enough to go around to make both parties happy.

(As an aside, this was another interesting moment for Quora and its position among the tech leadership.  A question about why Twitter shut off Ubermedia garnered responses from Bill Gross, Ubermedia’s CEO, and Matt Graves, Twitter’s communications director, although there’s some doubt as to whether the post really came from Graves.)

UPDATE 2/21:  By the way, fear not for either party.  For those of you who think “I knew Twitter ultimately had no business model,” they still have considerable value for other infrastructure players or those who would like to get into/expand their infrastructure play.  In other words, even without a business model, someone will and should pay billions for them.  The case is a little murkier for Ubermedia.  As my friend and colleague Sean Bohan noted, “you play by the open API, you die by the open API.”  Twitter can continue to encroach on Ubermedia’s space.  Much as I hated it, for a brief period of time over the weekend, I had to move to an alternative Twitter client, and the pain of doing so (i.e., the switching cost) was very low.  But Twitter’s not about to shut off its third party ecosystem.  The damage would be too severe.  And thus, Ubermedia, who has critical mass, is both a target but an important ally.  “Frienemy” at its finest.

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Demand Media: Click Troll

Posted on January 26, 2011 by jyarmis

Demand Media went public today in one of the largest and most successful Internet IPOs in a long time.  That has to be good news, right?  We all want Internet companies to prosper.  We all want the financial markets to open up so we have more exit options.  Well, without getting into the financials of the whole deal (if you want a good analysis, read here), let me just state that I find the whole Demand model to be bizarre and unfortunate.

First of all, if you’re reading this blog, you’re probably not very familiar with Demand Media.  That’s because you’re generally smart enough to search and browse the Internet.  If you’re not so smart, well, Demand is looking for you.  Their business is really quite simple.  They accumulate a lot of domain names.  They populate those domains with low quality content created by a legion of freelance writers.  They then search engine optimize the heck out of that content so that it appears high on Google page rankings.

Here’s where it gets really insidious.  They then rely on the P. T. Barnum effect to drive revenue.  You know…”there’s a sucker born every minute”?  It’s actually important to Demand that the content be of low quality.  They don’t want you spending a lot of time with the content.  In fact, they’d be very happy if you never read the content.  What they want you to do is find nothing of interest on the page but find a link in an ad on the page that takes you where you actually wanted to go in the first place or really, just someplace else.  When that happens, kaching.  They get paid by Google for that ad click.  That’s their source of revenue.  Period.  Oh yes, they’re also a domain registrar but they do that not because it’s such an interesting business but because it gives them inside access to expiring domain names that they might like to own.  It’s also important for them to have a really good source of information on what people are searching for so that they can best satisfy that need with their content and domain names.

Google also benefits from this dirty little arrangement because Demand generates so many ad clicks that might otherwise have gone to organic search results.  Here’s though where it gets dangerous for Demand.  Let me hasten to note that the problem I’m about to talk about is not of Demand’s making.  They’re just a shrewd beneficiary.  Have you noticed that Google search results are getting worse and worse?  Most of you probably don’t even notice but right on the Google search screen, there’s a button that says “I’m Feeling Lucky.”  If you enter a search term and click that button, it takes you right to the first result of the Google search.  No search results page, just the first piece of content.  There was a time when that actually was a good choice.  Google’s search algorithm was so good, or so they represented, that you could just click that button and save yourself an extra click.  When was the last time you did that?  And what did you get?  Well, if you did it, you probably got a Wikipedia page (and if you wanted Wikipedia, wouldn’t you have gone there in the first place?).  Increasingly, though, there s a chance that you got not the information page you wanted but rather someone who did a great job of search engine optimizing (SEO).  There’s a whole industry around SEO.  I do Google searches these days that return such bad results that it’s not until the second page or later that I actually get to some content related to what I was searching for and not some Google-optimized retail “opportunity.”

Somewhere soon, Google is going to have jiggle with its indexing algorithm to push these “click trolls” further down in the results page so that the high quality content that you’re searching for actually appears back on that first page.  Whether they explicitly punish Demand Media, I have no idea.  Probably not.  But the net result should be that people who are trying to trick the search engine into presenting you their page when it really isn’t what you’re searching for should end up lower down in the listings.  For those of us trying to use Google as a vehicle to find information, this is great news.  For Demand Media, not so good.

Demand has built a business that today is valued at over $1 billion by gaming the system.  Good for them.  Not so good for us.

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The Return of Larry Page and Google’s Need for Revitalization

Posted on January 21, 2011 by jyarmis

The news that Eric Schmidt is being “kicked upstairs” to Executive Chairman at Google, to be replaced as CEO by co-founder Larry Page, has us all reading the tea leaves for what that means for Google.  Google is almost as difficult to work with for analysts as Apple and thus, my reflections below come mostly as a long-time, interested observer of Google than any deep insights I have from working with them.  I do, however, spend a lot of time working with people who work with Google.

  • The replacement of a CEO by a founder at a successful company is not exactly without precedent.  Michael Dell got shunted aside by his Board only to lead a renewal of the company upon his return.
  • What do these people have in common?  John Sculley, Michael Spindler, Gil Amelio.  Those were the people who served as Apple CEO after Steve Jobs was pushed aside.

Thus, there’s precedent for a CEO returning to revitalize a company that has lost its way.  Now I’m not saying that Larry Page is Steve Jobs or even Michael Dell.  That has yet to be demonstrated.  However, make no mistake about it, Google is in need of revitalization.

How can I make that statement about one of the industry’s grand success stories?  Well, let’s peek under that success.  What exactly has Google succeeded at?  I and others have long observed that Google’s a one-trick pony even while acknowledging that the one trick is a pretty darned good one.  Other than selling advertising on search results pages, what has Google done that has earned money?  I’m a big fan of Android, and happily own a Droid, but that’s not a revenue story yet.  Clearly the bet is that mobile advertising is going to be really big and that owning the platform is essential to reaping full economic benefit or at least maintaining control of its own destiny.  Perhaps true but as yet unproven.  That’s largely it from a revenue producing standpoint in the immediate and medium-term.

Google’s other initiatives have largely been either failures (e.g., Wave) or acquisitions of interesting things (e.g., YouTube, Picasa) that haven’t particularly benefited (nor been harmed) by Google’s acquisition.  Saying “nor been harmed” is actually a positive statement as we’ve seen numerous tech acquisitions over the years where the acquired company/technology disappears into irrelevance.  Nonetheless, it’s fair to say that Google’s a one trick pony.

Here’s the challenge:  that one trick is on the verge of running out, perhaps a victim of Google’s own success.  Most of you are probably aware of the acronym SEO.  Search engine optimization.  Basically it means that it’s important for a web site to show up on the first page of a Google search result either through “gaming” the Google indexing algorithm and/or through buying keywords.  Both of those today face challenges.  Google used to be magic.  When you typed something into its search box, you were presented with the pages you actually wanted to see.  Now you see more and more pages that are not really the ones you wanted but instead are ones of someone trying to sell you something who have done a better job of playing the SEO game than the actual content you were trying to reach.  And if I wanted the Wikipedia page, which so often shows up first, well, I would have gone to Wikipedia in the first place.  Thanks for nothing.  I won’t get into the discussion about the challenges to Google’s keywords because either (a) you know this better than me or (b) if you don’t, it’s not really that interesting; just know that there are a lot of dissatisfied campers in the world who are really looking for alternatives, more cost-effective and more effective, than Google.

What does this have to do with Larry Page and Eric Schmidt?  Two-and-a-half years ago, Google’s Marissa Mayer said search is “90 to 95%” solved.  I was in violent disagreement with that then and since then, I would argue we’ve moved backwards.  It is getting harder and harder to find what we want and what we need, and the introduction of more complex time and location elements is only worsening the problem.  It’s not like Schmidt had a more compelling vision than Mayer as expressed in this interview at the time with Michael Arrington.

Google is in need of a reinvention.  I was going to say “desperate” but it hasn’t reached that point.  Yet.  However, search is being reinvented in front of our eyes.  For certain things, I don’t go to Google but instead go to Twitter or Quora or Facebook or any of a hundred different sites that give me not an algorithmic result but a human or curated one.  And there’s wide amounts of room to improve the algorithmic search taking radical new approaches.  I’m not holding up Bing as an example of a radical new approach but it is a step forward with an attempt to divine context when searching and to present “solutions” and not just algorithmically-resulting pages.  Cheap shot alert:  You know when Microsoft is out-innovating you, you’ve got an issue on your hands.

I don’t know whether Larry Page is the man with the vision to reinvent search and reinvent Google.  However, I’m pretty sure Eric Schmidt wasn’t that man.  Give Page (and Brin) credit for recognizing the “problem” before it really started manifesting itself in true harm to Google’s core business.  Google has always been noted for supporting its people in the development of quirky projects which have ranged from the totally inane to the mildly interesting.  I’ll be looking for signs now that we’re going to see profoundly new, important and creative approaches to Google’s core business, led and oriented by Page.  The one-trick pony needs a new trick.  Zenith or reinvention?  It’s going to be an interesting year.

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Facebook’s $50 Billion Valuation: That Sounds Reasonable, Even Cheap

Posted on January 3, 2011 by jyarmis

2011 has begun with news that Facebook has secured a new round of funding which values the company at $50 billion.  I actually think that’s a reasonable valuation (although in another post later today or tomorrow, I’ll talk about my expectations of a social ennui in 2011, as we come to realize the fundamentally flawed approaches most brands are taking towards the notion of social engagement; yes, I know, a provocative statement).  In fact, I believe there’s still room for growth in Facebook’s valuation nor do I expect this valuation will cool the private trade in Facebook shares.  Many early commentators seem to the valuation is insanely high.  I actually engaged in a Twitter exchange with two analysts I hold in the highest esteem — Sameer Patel and Esteban Kolsky — around 2:30 this morning on this very subject.

My points:

  • Google’s market cap is nearly $200 billion.  Is Google really four times more valuable than Facebook?
  • Users now spend more time on Facebook than they do on Google, Yahoo…or any other web property.  Somewhere that’s monetizable (although that’s a post for another day soon).
  • Users are not only exchanging information about where and what they eat, social platforms are becoming an increasingly important way of discovering information, augmenting and, yes, replacing search in that regard.  (Where did you find out about this blog post?)
  • It is much easier to for a user to replace Google than it is to replace Facebook.  If you want to replace Google, you go to Bing.  Period.  You might even find the experience better.  OK, it’s a little tougher than that.  You might have to exchange tool bars, change a couple of preference settings on your computer and update a few links and passwords.  Those of you reading this blog are probably more sophisticated than most so you have a few more things to change but also the technical wherewithal to do so.  You could do it today and wouldn’t miss a thing.  I’ve even seen a few friends announce their New Year’s resolutions as going Google-free this year.  (Well, some of them said Google- and Facebook-free although ironically they made this proclamation on Facebook.)  Anyhow, you could reasonably go Google-free and have a completely adequate replacement by the end of the day.  How would you replace Facebook, however?  This assumes, of course, that you think there’s any value in a social platform, and I’m not going to try to defend against the argument that you don’t need to replace Facebook.  Facebook is so much more than a listing of who’s doing what but also categorizes my relationships (business and professional), captures activities (and serves as the log-in) to/from many third-party web sites and has otherwise become an important piece of the connective tissue.  Replacing Facebook means rebuilding your social connections, likely across multiple platforms involving multiple acts of outreach to friends on the disparate platforms.  Rebuilding your social graph is time-consuming and likely to be incomplete.  “Substitutability” is one component of the economic definition of a commodity.  Google is highly substitutable, Facebook is not.

Sameer and Esteban also suggest that Facebook is just the flavor du jour and that they’re due for a fall.  I do not believe this is an issue in the horizon over which this valuation must be justified.  Yes, in the early days of key technology platforms, we burn rapidly through a number of them before sticking on one for a variety of complex reasons, usually beyond the control of the platform owner itself.  How many search engines were your favorite/default?  I count Yahoo, Excite, Ask Jeeves and Alta Vista as past favorites before sticking on Google.  Similarly, I used several social platforms before Facebook achieved its prominent and dominant state.  500 million users gives you a pretty strong base from which to retain market leadership and even competitors are now being forced to embrace Facebook’s role in the “ownership” of the social graph (witness MySpace’s recent concession; TechCrunch has a particularly amusing take on it).

    I hasten to acknowledge that Google has done a much better job of monetizing its position and that in fact is the enduring genius of Google.  As I and others have often observed, Google may really be just a one-trick pony…but it’s a damn good trick.  Facebook is nowhere near as mature as Google when it comes to understanding, or inventing, how it’s going to monetize its commanding position.  I think, however, that represents as much a failing of brands and consumers as it does of Facebook.  Maybe if they hadn’t handle the whole Beacon initiative in such ham-handed fashion, we’d be much further along…but there’s no turning back that clock and besides, Facebook has continued to make boneheaded moves in maintaining the critical user trust although, critically, I do not believe it has even approached the status of irreparably damaging that trust.  People just haven’t abandoned the platform despite all the posturing and hand-wringing.

    Anyhow, I believe profoundly in the ability to monetize social platforms and their tremendous power in transforming the relationships between brands and customers, customers and customers and among brands themselves.  Today’s blather about “being part of the conversation” is most assuredly not the answer.  A few years from now we’ll look back on today’s efforts and laugh at just how immature, ineffective and ultimately misguided they were.  In fact, I think this will lead to a bit of what I call social ennui (that’s French for “boredom”), which I actually believe will be a dominant theme in social media in 2011.  Again, I’ll write about that today or tomorrow in my look-ahead blog piece.  For now, I’ll just leave it that a $50 billion valuation for Facebook sounds actually quite reasonable and that it’s not evidence of a bubble (although Groupon’s walking away from $6 billion may be).

    Happy 2011, friends.

    Filed under: Ad-Supported Business Models, Marketing, Social networking, Uncategorized | 4 Comments »

    Groupon: TFM

    Posted on December 5, 2010 by jyarmis

    Groupon has apparently turned down as much as a $6 billion acquisition offer from Google.  They’re thinking that if they grow their business out a little more, an IPO or subsequent acquisition could bring them as much as twice as much.  I have three letters for them:  TFM!!!

    What, you say, is TFM?  Some of you may remember Pointcast.  It was a darling of the very early Internet days.  In fact, it was a pre-Internet company, providing dial-up access to its information resource.  I actually was a delighted user of their screen-saver product (and still wish I had something like it).  Rumors had it that Rupert Murdoch and News Corp. had made a $450 million offer to acquire the company.  I was on the advisory board of ad-tech at that time and we had Chris Hassett, Pointcast’s CEO, on stage and asked him about the rumors.  He wouldn’t confirm them nor deny them, indicating that there was a lot of discussion about how best to maximize their value and saying that he believed it would be best maximized via an IPO.  “IPO?,” someone in the audience called out, “TFM!!”  “TFM?,” Hassett replied.  “Take the f***ing money.”

    Two-and-a-half years later, Pointcast sold the company.  For $7 million.

    Do you really believe that Groupon’s position is so unassailable and their approach so unrepeatable that there’s no risk to their future opportunity?  Would you turn down $6 billion??

    Groupon, TFM!!!

    UPDATE 1/14/2011

    It boggles my mind but maybe it was a good idea to turn down the $6 billion.  If, that is, you believe these rumors of a $15 billion IPO.  I admit to not having looked at any financial models but my sense of this valuation is that it’s totally insane.  On the one hand, you’d think that there’s some barrier to entry in this space, with the requirement to build out a local salesforce.  On the other hand, I already get at least five or six discount offer emails a day, some with a local focus (e.g., LivingSocial), some with a national focus (e.g., Woot) and some (e.g., Thrillist) which bridge the two.  And the people who do those mailers (e.g., Valpak) are getting into that business as well.

    There’s a lot of competition from entrenched players already.  There’s going to be growing competition from big players (e.g., Google, Facebook).  Pretty soon, everyone is going to be playing this game.  Is Groupon really the killer implementation?  Or are they getting out just in time?  Again, I’m no valuation expert but I think these numbers are just wild.

    UPDATE 2 1/14/2011

    Interesting take from Greylock, one of the VCs investing in Groupon.  They say two things for why they invested in Groupon:

    1. The power of data.  I’m not convinced Groupon has any inherent advantages or different slants on this subject to merit a stratospheric valuation.
    2. This is a winner-takes-most kind of market.  I see no justification for that assertion.  On any given day, I’ll peruse a few of these offers and purchase based on what’s most interesting to me, not the source which originates them.  I don’t think they have any inherent advantages in offer acquisition that make their offerings any better than anyone else’s.  There are so many local merchants that consolidation in merchant acquisition is unlikely to occur.  I can think of no example where there has been this consolidation other than maybe Craigslist and eBay, and their approaches (zillions of items) are different than Groupon’s and others’, where they offer one or several deals a day.  I think there’s room for many players and that you will actually see aggregators step in and consolidate multiple offers from multiple sources in a single email.  (Come to think of it, I should start that business.)

    Filed under: Ad-Supported Business Models, Marketing, Social networking, Uncategorized | 4 Comments »

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