The Week in Geek™ – Sept. 30, 2010

NOTE: I’ll be taking a break from regularly publishing the Week in Geek.  I’m on sabbatical until January 2011, and am also nursing an arm injury.  Fun/interesting articles will still be posted via Twitter @gallaugher (where I can post via iPhone and avoid excessive typing at an RSI-inducing keyboard).

Facebook Sells Your Friends
At first blush (and as readers of our Facebook Case know) Facebook ads look like a terrible business. Facebook ads have an average click through rate of about one-tenth of one percent vs. 2% at Google. But the special thing about Facebook ads is they can move from the sidebar, described by some as an “advertising ghetto”, into the users of feed where it becomes part of the Facebook conversation and can spread virally as part of a friend’s endorsement. For success, look to Nike, which leveraged video of its compelling World Cup ad to double its fans to 3.1 million in a single weekend. Even more important, when a user becomes a fan they effectively opt into future marketing from that firm, all of which can be served into the newsfeed (no more ‘ad ghetto’). Downside for Facebook: those fan page status updates are all free to send. Facebook is going to have to build compelling reasons to keep firms buying sidebar ads, too.

No one can ignore Facebook’s audience. At 550 million members worldwide it’s over five times larger than the most-watched television program in history (last year’s SuperBowl). Half visit of those users visit every day. Even with poor performing click-throughs, the ad biz is booming. Facebook ad revenue this year should be about $1.4 billion. That’s about what Google earned in 2003 when it was roughly the same age. While Google’s ads are meant to prompt a click through, Facebook ads are all about branding. Brand advertising accounts for about 90% of the $600 billion ad market, prompting of Facebook’s number-two executive Sheryl Sandberg to say, “we are a much bigger market than Google, and we have much more runway.” Facebook can also identify an ad with a friend, and if a user “likes” an ad or comments on it, friends are up to 30% more likely to recall the ad’s message. Facebook’s targeting should grow beyond search keywords that generate most of Google’s coin. Facebook knows which brands, music, and causes you like; it pays attention to status changes such as declaring that you’re engaged; and a feature called “learned targeting” allows advertisers to promote ads to friends of their existing fans in hopes of snaring people with possibly similar tastes.

For more evidence of Facebook’s potential runway remember that all of Facebook’s ad income is generated within its own website. About 40% of Google’s take comes from the ad network, where third parties ranging from the New York Times to small time bloggers run ads served by Google. Imagine how much money Facebook could make if it could serve ads on content providers that currently serve Facebook’s “like” button or use Facebook login credentials. Of course, Zuckerberg will have to learn to play nice with privacy, something the firm has repeatedly struggled with in the past.

Social may be the future of advertising.  A Google exec recently declared that within five years, 75% of all ads will be social (see the previous link for a rundown of Google’s new and upcoming ad formats).

Tech Companies Go Shopping Abroad
A look at the huge amount of tech industry M&A activity since July suggests that would-be i-bankers should best geek up (the IS and Finance double-major combo is booming at BC). And expect it to continue. The eight largest tech firms are sitting on a combined $300 billion in cash. A bit of pride at Chestnut Hill (and as TechCouncil members know from our meetings & LinkedIn group), BC grads are at the center of a lot of this activity.

Look for tech firms to buy more international companies as well. US companies are flush with cash, but a lot of this money is parked abroad. If they bring it home, firms’ll be subject to significant taxes. In the absence of the tax holiday that prompts many firms to go shopping overseas. Google is made 22 acquisitions this year and seven of those have been abroad. Intel plunked down $1.4 billion for the wireless business of German chip maker Infineon Technologies. And last year Cisco spent $3 billion to buy Norwegian video conferencing firm Tandberg.

Smartphone Credit Cards: Are US Consumers Ready to Trade in Their Plastic?
There are 1 billion credit cards the pockets of American consumers, but a new pilot by AT&T and Verizon will test to see if users are willing to ditch plastic and instead pay via smartphone. A new report suggests that the two US phone giants are about to partner with Barclaycard and Discover to develop and test a mobile phone as credit card system in four American cities. Mobile phones are already used for payment services in many countries. It took about 3 to 4 years for pay-by-phone to catch on in Japan, and mobile payments are booming in the developing world where banking services are scarce (see our Moore’s law chapter). A number of hurdles remain, including security, convincing consumers to change their habits, and convincing retailers to upgrade technology. But the mobile phone as payment mechanism also opens up an opportunity for game changing customer interaction at the point of purchase. Think on-site couponing, loyalty programs, targeted promotions, and more.

Don’t Rule Out Apple Ruling Your Living Room
Apple has 160 million credit card numbers on file thanks to iTunes. Compare that to Comcast, which has ‘just’ 23 million. The new $99 Apple TV is priced as an impulse buy and offers a stocking-stuffer size – a combo that may prompt many an iTunes fan to begin gorging from Apple’s bits buffet from the convenience of their couches. The new Apple TV has no hard drive – it’s meant to be a ‘cloud’ device, one reason why Apple built a $1 billion 500,000 square-foot data center just off a two-lane road in rural North Carolina. TV shows are meant to stream (‘rent’ instead of ‘buy’) TV shows at $.99 a pop, movies at $3.99-$4.99. Apple integration means you can start watching on your TV, then finish up on your iPhone or your iPad. That model may be a killer for Apple, but terrifies some studios (control content and distribution is one of the reasons why Comcast is buying NBC Universal). Integration with Netflix, YouTube, and the ability to stream media from Macs & PCs brings all sorts of value beyond the standard cable set-top box. More potential: Jobs has said that when the time is right, Apple could turn on an App store for Apple TV (the device runs iOS and uses the same chip as the iPhone and iPad – FastCompany describes Apple TV as “more powerful than you may imagine”).  That prospect leaves pundits salivating at potential scenarios. Imagine TV centric apps that provide truly interactive television experiences for game shows, sports, reality TV voting, and more. How about a world-class, super easy-to-use TV Guide? Why not add a camera so you can FaceTime with grandma? And since the AirPlay feature will allow content from iPhones, iPods, and iPads to stream to the big screen, shouldn’t we expect games to jump out that motion-sensitive controller in your pocket (the iPod Touch or iPhone) and on to the biggest screen in your home?

For an interesting recap of Apple’s Sept. product introductions, see FastCompany’s “New Products Reveal Apple’s Stunning Brand Discipline.”

Intel Wants to be Inside Everything
Intel’s Atom processors aren’t as fast as the companies core product, but they’re much cheaper, and sip a fraction of the power of high-end chips, making them perfect for so-called embedded systems which put computing technology into mundane devices. Embedded systems represent a $10 billion market, but Intel’s take of that is just $1 billion.  A new push to get Intel inside everything from gas pumps to automobiles saw 3,800 inquiries during the second quarter of this year. Exercise equipment firm in Nautilus put Intel chips into its treadmills to stream Internet video and upload stats from workouts. LG will use the chip to create “Minority Report”-style displays that will recognize the age, gender, and other characteristics of a passerby and customize advertising accordingly. Indian banks have used the chip to create a handheld banking terminal for use in rural areas. Bankers visit low-income customers about once a month, bringing banking services to places that aren’t served by electricity. Intel’s recent acquisitions bolster the plan. Last year the company spent $884 million to acquire Wind River Systems, an operating system provider for embedded devices. And when all these products become smart, they become vulnerable to computer viruses. That’s one of the reasons why Intel bought McAfee for $7.68 billion earlier this year. A great read for those using our Moore’s Law Chapter, or the embedded systems section of the Software Chapter.

WakeMate: Timing is Everything
BC undergrad Greg Nemeth entered the Boston College Venture Competition three times.  In 2009, coached by an alumnus from one of Sand Hill Road’s leading VC firms, he walked away with the competition’s “big check” for $10,000.  He and partner, Yalie Arun Gupta, promptly won the Yale competition, then took a leave of absence.  Expect their product, the sleep aid WakeMate, to ship soon.  WakeMate is a science-based combination phone app and wristband that offers the promise of a groggy-free wake-up. Boston College magazine profiles the firm’s journey from idea through pre-launch.

Dilbert on Social Media
Dilbert’s firm gets a social media manager, and she meets the boss.