The Week in Geek™ – July 22, 2011

For faculty using my textbook, my publisher has put up a page for version 1.2 (although it isn’t schedule to ship until mid-August – contact FlatWorld for details). I’ve worked hard to blow past expectations for the currency of conventional business texts, and I hope that you find the new version to be “course-pack fresh”. Thanks to all who have written with kind words and encouragement!

Social Media History – The New Job Hurdle
A must read for students and employers! Students, beware what you post! A year-old start-up, Social Intelligence, scrapes the Internet for everything prospective employees may have said or done online in the past seven years. It’ll scout out your upside – honors and good deeds, but also hunt for the bad stuff: racist remarks, drug references, sexually inappropriate posts, and identifiable violent activity including displays of weapons or bombs (yikes!). Social Intelligence reports have gotten past initial FTC concerns. Job candidates must consent to the background check, and are notified of any adverse information found. Reports also remove references to a person’s religion, race, marital status, disability and other information protected under federal employment laws. But those doing the hiring should be careful, too! Warns one EEO Commission manager “Things that you can’t ask in an interview are the same things you can’t research,” such as information on a person’s age, gender, religion, disability, national origin and race.”

Commentary: This is a key issue – we warn students about employer searches all the time, but who‘s warning the employers that social search done poorly could prompt a lawsuit? And screening is happening – 75% of recruiters are required by their firms to research candidates online, and 70% of U.S. recruiters report they’ve rejected candidates because of what was found online.

For job seekers, if you’re not responsible online, then fear your Facebook. But there is an upside in a world where social media is the new resume – you can distinguish yourself as someone who’s smart, knowledgeable, curious, has something of value to say, and can attract a following. In fact, in some fields you can be screened out if you’re not active on social media. One VC recently told me that the firm wouldn’t seek out interns through college recruiters. If someone didn’t catch the recruiting announcement on Twitter, then they weren’t working hard enough to become an industry player. This isn’t all that new. When I was in industry I’d regularly ask technical candidates ‘how do you learn?’ In those days alpha-geeks used Compuserve (yes, I’m old) or similar resources to vault a learning curve and avoid reinventing the wheel. Today technical recruiters should expect deft applicant use of Stack Overflow, Quora, and kin. Also be smart and consider that your future coworkers will likely spend more time with you than their spouse & family. If a portion of what you share online is snarky gossip or grumbling, hyper-partisan political diatribe, or blowhard prognostication, then your social-self is recruiter repellant. You may be really nice ‘in person’, but social media is the modern first impression. Don’t blow the show.

Why Netflix Raised Its Prices
One of the cases in my book is on Netflix, and big changes are afoot! Reed Hastings has essentially recast Netflix into two businesses – DVD-by-mail and streaming over the Internet, each operating with a distinct management team and subscription plan, but both under the Hastings-led Netflix umbrella. DVD-by-mail is still wildly popular, but earlier this year the splash screen at Netflix.com dropped all mention of discs. The flagship product is now unlimited streaming (priced at $7.95). Want a disc-at-a-time subscription plan with that? It’ll cost you another $7.95. A single subscription for the combined service used to cost customers just under $10, so the change prompted many to flame the firm. Overnight the Netflix Facebook page was bombarded with 44,000 angry posts, Twitter trended with the #DearNetflix hash tag, and the New York Times’ David Pogue called the move “a 60 percent overnight price increase – that gives you nothing new in return.” It’s a risky transition, but Hastings has framed it as a cost issue, claiming that if people are going to use both DVD-by-mail and video streaming services, then Netflix will need more money to support the very different costs associated with both businesses. Gripesters take note – PC World pointed out that even with the price hike, Netflix still represented a far greater value than any of the available alternatives. And Netflix is a firm that regularly models customer churn and has almost certainly run numbers on the risks and benefits of the pricing change.

There are pros & cons in this atoms-to-bits shift. Mail charges drop (the firm represents 20% of U.S. first-class “flats” and 1.7% of all first-class mail revenue). And eventually Netflix may be able to close some of its 50+ distribution centers. But the firm’s long-tail DVD inventory has a much shorter streaming tail that lacks many first-run titles (could be a boom for Redbox). DVD acquisition is also largely a fixed-cost proposition (the Supreme Court ruling known as the “First Sale Doctrine” allows any firm to rent out physical discs it purchases), but “First Sale” doesn’t allow for digital streaming. This leaves Netflix vulnerable as streaming licenses continue to rise. Netflix gained access to Sony and Disney titles through a deal with the Starz cable network, but analysts think the renewal of the Starz deal may cost Netflix 10x the original price. And licensing has all sorts of inconsistent provisions. Sony titles were pulled when a viewing cap on streaming Starz content was exceeded, and some titles are pulled when cable networks bid for exclusive ‘viewing windows’. Others (notably HBO) refuse to share their content. And while in the atoms world a failure at one distribution center allows the others to pick up the slack, the bits-only side of Netflix has seen repeated failures in its bits streaming infrastructure, resulting in multiple service outages. The skeptic sees Netflix straddled between two businesses without getting the full efficiencies of a pure-play. The Netflix-bull sees the firm’s size and ecosystem (you can now stream Netflix on over 200 consumer electronics devices) as insurmountable competitive advantages. And look for Netflix to try to grow that scale even more. The firm has announced plans to expand to an additional 43 countries (streaming only, of course). And for those teaching the Netflix case, there’s one more tidbit you might want to mention to your students – Reed Hastings is now on the board of Facebook (a nice addition to the role he already enjoys on the Microsoft board).

Google+’s Circular Logic
There’s also big news relevant to Google (another case in my book), too. Google’s success in social media has been mixed. Its two biggest successes – YouTube and Blogger – were both acquisitions. Internally-developed Orkut has for years ranked as the top social network in Brazil but has limited success in only a few other nations; and Google-hatched Buzz and Wave were both dismal failures. But with Google+ the firm may have finally created a hit (says one manager of the launch ‘This could scarcely have gone better“).

The multifaceted service rolled out as an integrated collection of social products associated with a user’s Google profile (here’s my profile – feel free to follow). Stream is a newsfeed, Sparks is a recommendation engine, Hangouts is a video chat service that can support groups, Huddle offers group texting, Circles helps manage sharing contacts (so you can share a given item with just ‘friends’, ‘business contacts’, or any other sharing circles you want to create) and Photos is an image sharing service that leverages the firm’s Picasa offering. Novel features are layered on top of elements similar to those found in Facebook, Twitter, Tumblr, Skype, and Group.me. And initial Google+ features are just a start – the firm has promised to add Games, Questions, services that allow businesses to get in on the socializing, and more. Mashable offers a Complete Guide to Google+, with links to ‘how to’ videos.

Learning from earlier failure, Google+ got a lot of things right. The interface design was praised (Andy Hertzfeld, a member of the original Macintosh design team, was behind design efforts), and the new features were tightly integrated with other Google products. A toolbar that runs on top of most Google services means that Google+ is just a click away (but bad, if that creates a ‘bundling’ concern that Google favors its own products over rivals – think Windows/IE/Media Player anti-trust rulings). Circles were easily built from Gmail contacts. The big upside is control that makes Google+ “as good for a whisper as it is for a shout”. Circles potentially gives you the best of Facebook & Twitter – sharing isn’t reciprocal (when you post you specify whether it’s viewable by the public, or only by select circles), you can follow whoever you want, and you’re not limited to the 140 Tweet limit. The downside? Fragmenting the market. I already post to Twitter, Facebook, and LinkedIn. Unless a service like TweetDeck comes along that adds easy G+ posts side-by-side with these others, then there’s gonna be a shakeout. Google+ will need to build its user base fast if it wants to last – a tough task but the rollout promised a contender. Despite being launched only in invitation-only beta, Google+ attracted some 10 million members in just its first two weeks, making it the fastest growing social network of all time. Michael Dell has hosted over 22 Hangout video chats, Mark Cuban is a Google+ posting fiend, and even Mark Zuckerberg has a G+ account! That’s a great start, although still far behind Facebook and Twitter.

Look for Google to recruit friends to build the platform. It’ll offer social game firms more favorable rates than Facebook, which takes 30% of sales and has a cushy relationship with Zynga (Google’s in-app payments ask for only a 5% cut, although it isn’t clear if this’ll be the G+ rate). Google will also host games, allowing game makers to save on infrastructure costs. Oh yeah, and while Facebook & Zynga are close? Google is also a major Zynga investor. If Google+ is a hit, the firm could gain an opportunity to serve more ads, grow additional premium services (a game currency, fees for increased photo storage), and gain additional data and insight that can be used to help in search, content recommendations, and ad targeting. Competing in winner-take-most markets where network effects dominate will be tough, but Google brings a number of assets to the table (think size, scale, brand – hundreds of millions of people with Google user names and passwords, an army of Android smartphone users) and seems committed to growing the effort. Earlier this year CEO Larry Page stated that Google will tie employee bonuses to the success of the firm’s social efforts. For an insider’s look at the making of Google+, see this piece from Wired by “In the Plex” author Steve Levy, who researched his book but remained mum during the service’s development.

Apple Blows Past Estimates
In the days before the iPhone launch, Boston College alumnus Phil Schiller gave my students a master class in Apple marketing, then days later invited the group to VIP seating for Steve Jobs’ keynote. That day we watched tech-industry history unfold. The iPhone business is now half the revenue of the second most valuable company in America (see chart). The iOS-based iPad, not yet two years old, is a $6 billion business, that’s not just bigger than the Mac at $5 billion, it’s at a run rate that last year would have put just the iPad business at the edge of the Fortune 100. Mac sales (already growing far faster than the industry) were up 14% over a year ago. Revenue is up 82%, and profits up 125%. The firm’s cash balance of $76 billion is greater than the market cap of more than 40 of 2010’s Fortune 100 companies. The once left-for-dead firm is not only huge, it‘s growing faster than most rivals – something the law of large numbers says shouldn’t happen.

The innovation continues. Apple launched new products this week (a refreshed MacMini and Macbook Air), and OS X Lion. The operating system was disc-less – it could ONLY be purchased online. Apple sold a million copies in the first 24 hours. Between Apple and Netflix it’s clear that plastic discs are dead. Accounting students may be interested to note that Apple has deferred some revenue related to software/feature upgrades so that it can legally roll these out without having to charge users (that’s accounting to fuel tech feature adoption). And one bit of wacky news. While Chinese firms are notorious for counterfeiting Apple products, it seems they’re now counterfeiting Apple stores, too!

Cyber Weapons: The New Arms Race
A slideshow in BusinessWeek’s cyber warfare cover story seems designed to make you lose sleep (sample: researchers hack into a moving car’s standard onboard systems to disable brakes, stop the engine, and control other functions). The perps in recent actual cyber attacks vary but its becoming increasingly clear that cyberwarfare is escalating worldwide. The feel good story of the year (mentioned in the last Week in Geek) involves Britain’s MI6 replaced an Al-Qaeda bomb-making recipe with one for granny’s cupcakes. But the real watershed is Stuxnet (see this excellent Stuxnet video primer, and check out the Stuxnet crib-sheet). Called ‘the most sophisticated cyber-weapon to date‘, Stuxnet (allegedly launched via a U.S. and Israeli initiative, but never confirmed) infiltrated the Iranian nuclear program, instructing centrifuges to spin until they destroyed themselves. Alarm systems were re-programmed and monitoring systems were sent messages that everything was OK, even as hundreds of pieces of physical equipment were breaking up. To be clear, this wasn’t the familiar bits-only damage that most virus victims are familiar with – Stuxnet destroyed real, physical systems. Expect more. The U.S. is building up the Fort Meade CyberCommand, and Obama has signed executive orders giving a military all-clear to use cyber weapons for a range of tasks from espionage to (with a further presidential directive) the crippling of an enemy’s electrical grid.

We might feel good that a nuclear threat was set back, especially when the alternative shut-down option would have been open-conflict, heavy bombing, and almost certainly human casualty. But there’s now a fast-growing, venture-funded economy of cyber arms-merchants peddling offensive tech. E-mails from the shadowy Atlanta-based firm, Endgame, were uncovered when the hacker group anonymous hacked a prospective client. The e-mails detail a price list for offensive cyber tools and suggests that a menu of push-button hack attacks are now being peddled to customers other than Uncle Sam. “A government or other entity could launch sophisticated attacks against just about any adversary anywhere in the world for a grand total of $6 million. Ease of use is a premium. It’s cyber warfare in a box.”

The cyber arms merchant business is a wild west with unclear rules and frightening dynamics. The ‘weapons’ are digital goods with no marginal cost – meaning an infiltrated ‘armory’ can be duplicated (perhaps without detection), and ‘deployment’ happens online. Got a PC, skills, and a broken moral compass? You could be an arms merchant and munitions factory all in one. Of course, the weapons themselves are considered to be ‘brittle’, since countermeasures can often be developed quickly once exploits are discovered (Stuxnet used at least four “zero-day” exploits that had been previously unknown and indefensible).

The past few months have shown worldwide vulnerability of even some of the most sophisticated organizations. The Pentagon was hacked this summer. The attacks perpetrated against Google (dubbed “Operation Aurora” by McAfee) are ‘conservatively’ estimated to have infiltrated an additional 2,000 firms including Adobe, Juniper Networks, and Morgan Stanley. The hacking raid on security firm RSA (also mentioned in the last WiG) nabbed code from SecureID tokens (a product used by U.S. government agencies, defense contractors, and major banks). BusinessWeek describes the hit as the equivalent of “breaking into a heavily guarded locksmith and stealing the master combination that opened every vault in every casino on the Las Vegas Strip.” Although, it’s probably much more likely that you will win big on online casinos like mega8 than getting the opportunity to open every single vault on the Strip. There was also a 10-day attack on S. Korean computers in March took out thousands of machines (North Korea is suspected as the source). Cyber security is clearly every employee’s priority. See our security chapter for a primer on vulnerability and an overview of security measures (and look for an update, soon).

Millennials Make Millions
Faculty, here’s some inspiration to share with your students. A few years ago Catherine Cook spoke to my undergraduate Computers in Management core class (Cook is also mentioned in the first chapter of my book). I invited her to speak because she founded the successful social networking site, myYearbook.com, when she was just a sophomore… in high school! By 2008, myYearbook had grown to become the 15 most popular websites in the country, sporting more page-views than ESPN or Amazon. This summer myYearbook was sold to Quepasa, a social network targeted primarily to latinos The price? $100 million. That’s roughly three times what Newscorp got when liquidating MySpace. Not bad for a woman who just graduated from college herself. Congrats, Catherine!

WePay: BusinessWeek’s Best Young Tech Entrepreneurs
Pardon me for a prof’s point of pride, but it’s a real thrill to share the success of my former students. I hope it inspires others! It’s been a pretty great summer for TechTrek alum Bill Clerico and his BC classmate Rich Aberman. The duo were named to the prestigious BusinessWeek Best Young Tech Entrepreneurs list, TechCrunch crowed about their continued growth, and they’ve staffed up (they’re now 33 employees strong). The firm continues to offer a slick solution for groups to collect and spend money (nag deadbeats, collect funds in an FDIC ensured account, handle payouts, and expose a fraud-busting audit trail). But they’ve also moved into donation collection, ticket sales, and now store fronts. Launch day included coverage from Forbes, Mashable, TechCrunch, Fast Company, VentureBeat, and they were the lead story on my favorite tech news digest site Good Morning Silicon Valley. The new service looks like a winner, charging a straightforward 3.5% fee , compared with: Yahoo Stores (cheapest plan: $40 per month + 1.5% fee + 2.9% paypal fee + .30), Shopify (cheapest plan: $29 per month + 2% fee + 2.9% paypal fee + .30) , and Etsy (3.5% fee + 2.9% paypal fee + .30) (plus a 10 cent listing fee for every item). We remain hugely proud of Bill, who has gone from student to one of TechTrek’s hosting CEOs in less time than it takes most students to finish an undergrad degree. And co-founder Rich Aberman wowed BC TechCouncil West (and my undergrad students) during our May Palo Alto meeting. Congrats to Bill and Rich on their continued success!