The Week in Geek – June 30, 2008
NOTE: During the summer, the WiG goes on hiatus and publishes less frequently. This year I’m particularly busy writing my first book. I look forward to sharing info, soon!
Facebook Passes MySpace with Global Boost
Thanks to global growth, Facebook is now bigger than MySpace. When asked about it, Rupert Murdoch (who’s NewsCorp owns rival MySpace) quipped that Facebook was the “flavor of the month“. A bit of May-December trash talk from the septuagenarian to the 24 year old, eh?
Commentary: There are lot of folks wondering if Facebook is the next Google. This should be followed with the question’s second part “or the next Skype“. By that I mean, is Facebook (like Skype) another big, important, impactful business that will earn a sustainable profit, but not Google-esque, coin? Facebook boasts nearly 124 million users worldwide. Skype has over 309 million registered users – both amazingly large numbers (Skype’s active user #s are much lower, but it handles nearly 5% of int’l phone traffic). While Skype will never have substantive ad revenue, in one metric, Skype is better off because its service is peer-produced. Skype calls are forwarded peer-to-peer style, with the users acting as part of the infrastructure. There’s a very small computing footprint needed to support Skype’s huge user numbers. But at Facebook, all that great peer-produced content is stored on Facebook servers, racks and racks of processors that get hot enough to warp the encasing Plexiglas. Facebook is now the largest photo-sharing site online, and receives some 14 million new photos each day, and is already a top video destination, but those are resource-hog services to run. In May, the firm raised another $100 million, with the CFO saying it will go entirely to servers.
And let’s look at how those Facebook ad numbers shape up in mid-2008. The difference between Facebook & Google’s ad prospects comes down to the Hunt vs. the Hike. Google is like a hunt, a task-oriented expedition with a goal in mind. Users click on Google ads enough for this to be the single most lucrative activity among Internet pure-plays. The firm brought in $16 billion in revenue and $4.2 billion in profits in ’07, almost all of this from PPC ads.
But users go to Facebook like they go on a hike. They have a rough idea of what they’ll encounter, but they’re there to explore, look around. They allocate time for fun and they don’t want to leave the terrain when they’re having conversations, looking at photos or videos, and checking out updates from friends. Some reports have Facebook ad rates, which are charged mostly on cost per thousand impressions (CPM) at around 1.5 cents per thousand. That’s terrible! Mashable charges $7 to $33 CPM, Technology Review as much as $70. Granted, audiences for the latter are focused, and Facebook will likely benefit from targeting, but that’s a LOT of ground to make up. And while Facebook is bigger than MySpace, much of that growth came from overseas. MySpace is still twice as big in the US, where ad spending is much higher, and they’ve got $900 million from Google guaranteed over three years (although Google has said they’re having trouble with social networking ads, although the situation may be improving).
I’ve spent a lot of time asking my students how they use Facebook. There is no question that the service is as important to many as Google. And once everyone carries a location-based mobile device (iPhone?) these kinds of utilities will be bonded into how nearly everyone arranges their social lives and contacts. But so far there’s no evidence that really Googly-sized money is in Facebook. Maybe they won’t need it. Even with the Facebook hiring spree, the firm will likely have just 800 employees at year end (there are over 19,000 Googlers). Perhaps Zuckerberg can run lean enough. With two-thirds of users logging on each day, and over half of them spending 30 minutes or more, Facebook has an envious user base, For years, Yahoo has made a fine business out of selling ads to big audiences. But with the Facebook revenue high-end predicted around $350 million this year, it’s tough to see the ‘next Google’ hopes panning out anytime soon. Zuckerberg’s got the cash to experiment & build a compelling model. He’ll need the to grow into the valuation, but give the guy some credit – at 24 he really has built a game changer.
Speaking of which, the $15 billion Facebook valuation figure we’ve heard so much of is almost certainly an overestimate at this point in time. Reports dismissing attempts by Harvard folks claiming Zuckerberg ripped them off let slip that Facebook’s internal valuation is much lower (for info leading up to the decision, Rolling Stone did an interesting background story on the Battle for Facebook). And others have invested at a lower rates since the MS deal.
Once You’re Lucky, Twice You’re Good
Summer Reading Note: I’m usually not a fan of business books (most are too long-winded – for my time I get a better signal-to-noise ratio from the trade press & blogs), but when I run across one that’s entertaining and informative, I’ve got to give it a shout out. Sarah Lacy’s “Once your lucky, twice your good” is a great pick for folks looking for a balance between the interesting back stories and the substantive insight on what’s different about the latest crop of Silicon Valley entrepreneurs. There’s great discussion of how many of the new crop of Web 2.0 entrepreneurs (a term nearly all of them sneer at) have cast a different relationship with the venture community – at times skipping them entirely. It’d make a great supplementary class textbook for any course with heavy Web 2.0 component. I was skeptical. I know the Twitter crowd was really rough on Sarah Lacy during her SXSW interview with Mark Zuckerberg, but the former BusinessWeek writer and personality on Yahoo TechTicker, has done a great job. Highly recommended! I smiled when my copy arrived and I saw Andy Kessler blurbed the back cover (Kessler is also at TechTicker, and his books are required reading in my field study courses – another author I highly recommend).
Jobs WWDC Keynote
The Keynote happened a while back, but there are some items worth mentioning. The fact that the 3G iPhone will be a third the price of the original while offering nearly 3x the speed, is big, but the real story is in the tools. No question Apple sees iPhone as becoming a major platform.
Tools for developers are uniformly praised as being robust, easy to use, and reliable. I’m not a gamer, but game demos were amazing. From the quality of SuperMonkey Ball and Cro Mag Rally (both used the accelerometer for navigation), to a sort of Rock Band for iPhone developed part-time by an insurance company IT guy from the UK, it’s very clear that the iPhone and iPod Touch are about to invade PSP and Nintendo DS space.
Developers have easy access to core location services, so look for a deluge of apps that know where you are, either via the new GPS, or WiFi triangulation for the iPod Touch. Loopt showed a free buddy finder that displayed dots on a map to see who was near you. Click to call. The CEO quipped that the free app means that you never have to eat lunch alone again!
Apps are sold over the App Store in iTunes, available to every developer & every user. Freeware will be passed through at no cost, Apple will keep 30% of any commercial sales – passing the other 70% to the coder. This means a guy in a garage can hack away and get immediate distribution. If the app is good / popular, no marketing budget needed, no sales force, no distribution or inventory issues. Enabling buys from the phone is a key move (apps can be bought over 3G as long as the App is 10MB or less). Imagine being stuck in an airport, with iPhone. Bored? Download a new game & you’re entertained. Winning on the platform is about network effects. That means move early with a killer platform that’s easy to develop on (SDK – check), get them money (iFund – check), and get the product into the hands of as many users as possible (wait ‘til July 11th).
The rollout will include 70 countries. China wasn’t on the list, but this past May when I was in Beijing I could already data-roam over China Mobile with an affordable plan upgrade from AT&T. Japan will be accessible next year, but Korea was also a no-show (my iPhone was an iPod Touch in Seoul & Tokyo). For the curious, Hong Kong also worked fine. And the rumors about iPhones showing up in Beijing despite official sales are all true. Several executives I spoke with were packing iPhones and mentioned that they’re regularly asked to bring back iPhones on their trips home. BTW: the markets dipped when some speculated Steve Jobs may be sick again (he’s a survivor of pancreatic cancer). Fortune did an interesting article, suggesting no need to worry.
Gates Without Microsoft
Fortune did a great piece on Gate’s career on the eve of his shift in duties (he stepped down from day-to-day operations at the end of June). For a walk down memory lane & a look at what the greatest philanthropist of our time is up to next, check it out.