The Great Debate UK

A new challenge for Zuckerberg

By Kathleen Brooks. The opinions expressed are her own.

Who wouldn’t want to have been an early investor in Facebook? The graffiti artist who spray painted the walls of Facebook HQ decided to take stock rather than a paycheck and will be $150 million dollars richer as a result.

Facebook is one of the biggest ever IPOs in the U.S. and at the end of last week it even managed to knock Greece out of the headlines and was credited with boosting market sentiment.

The IPO road-show generated larger than expected demand for FB stock, which was met by willing Facebook employees and investors eager to sell. The hype didn’t end there; the stock price was priced higher than expected at $38 per share, valuing the company at $104bn! No wonder Facebook co-founder Eduardo Saverin has renounced U.S. citizenship to sell his Facebook stake and avoid capital gains tax. But the vast bulk of analysis in the lead up to the sale has been Facebook negative: it doesn’t have a sustainable business model, it doesn’t generate enough cash per user (approx. $5 per year, per user), too many insiders are too eager to sell, the price will crash…

But if there are so many reasons to sell, why are people queuing up to fill their boots with red hot Facebook stock?  I think the reason is Zuckerberg, and investors in Facebook are chasing his next great idea. The first thing he could turn his attention to is marketing and advertising. After saying that advertising isn’t cool (or maybe that was Jesse Eisenberg in the film The Social Network…) it’s wrong to write Zuckerberg off as a sell-out now that ad revenue will most likely be FB’s largest source of cash flow.

Let’s face it – online advertising in its current form is far from a success. Ad’s that pop up and block the view on your screen are not only uncool but boring and annoying. The advertising world hasn’t really got on board with the smartphone, either. Although we spend more of our time online than we do watching TV these days (and probably a lot of that time on Facebook), revenue from online advertising has been extremely slow to grow. It is expected to overtake newspapers as the second largest U.S. advertising medium behind television in 2014, however the growth rate of the internet is far superior to the declining newspaper business, which highlights the problem with online ads: they don’t create enough money.

Compared to TV ads, online ones look like their poor cousins. My favourite TV advert is still the Volkswagen ad with the little kid dressed as Darth Vader, which was first played at the Super Bowl a couple of years ago. It was genius, and I still remember it today. Now that he is an official billionaire (well, on paper anyway) Zuckerberg will no doubt need a new challenge. If he wants ads all over Facebook then he needs to make online advertising “cool”. He changed how we communicate – can he make online marketing more effective? If yes, then he could help other struggling industries like the newspaper business that have found online advertising to be a paltry pay master.

from Paul Smalera:

What real Internet censorship looks like

Lately Internet users in the U.S. have been worried about censorship, copyright legalities and data privacy. Between Twitter’s new censorship policy, the global protests over SOPA/PIPA and ACTA and the outrage over Apple’s iOS allowing apps like Path to access the address book without prior approval, these fears have certainly seemed warranted. But we should also remember that Internet users around the world face far more insidious limitations and intrusions on their Internet usage -- practices, in fact, that would horrify the average American.

Sadly, most of the rest of the world has come to accept censorship as a necessary evil. Although I recently argued that Twitter’s censorship policy at least had the benefit of transparency, it’s still an unfortunate cost of doing global business for a company born and bred with the freedoms of the United States, and founded by tech pioneers whose opportunities and creativity stem directly from our Constitution. Yet by the standards of dictatorial regimes, Internet users in countries like China, Syria and Iran should consider themselves lucky if Twitter’s relatively modest censorship program actually keeps those countries’ governments from shutting down the service. As we are seeing around the world, chances are, unfortunately, it won’t.

Consider the freedoms -- or lack thereof -- Internet users have in Iran. Since this past week, some 30 million Iranian users have been without Internet service thanks to that country’s blocking of the SSL protocol, right at the time of its parliamentary elections. SSL is what turns “http” -- the basic way we access the Web -- into “https”, which Gmail, your bank, your credit card company and thousands of other services use to secure data. SSL provides data encryption so that only each end point -- your browser and the Web server you’re logging into -- can decrypt and access the data contained therein.

By blocking SSL, Iran has crippled Tor, a program that enables Internet users to anonymize not just their content but their physical location as well. Tor is a very common workaround for users in totalitarian regimes to access Twitter, Gmail, Facebook and other services. It’s hard to come up with an apt analogy for Iran’s unprecedented blockage -- it’s not just that the letters you send are read by the Post Office and photocopied for their records, it’s that the Post Roads themselves have been closed off, so you can’t even send a letter in the first place. That’s the net effect of blocking SSL in Iran.

The hacking group Anonymous has brought down all kinds of websites in protest, mostly over copyright, in the U.S. and Europe. I don’t advocate their targeting any country’s servers for retribution, but where is the outrage or public demonstration or media attention over the denials of Iranians’ basic freedoms to communicate, via the Internet?

Unfortunately, it’s still too easy for Internet companies and even the Internet’s founding fathers to dismiss the importance of the tools they created in fostering free and open public dialogue, especially in places like Iran. Recently, legendary engineer and Google Vice-President Vint Cerf published a New York Times op-ed entitled “Internet Access is Not a Human Right,” where he wrote: “Internet access is always just a tool for obtaining something else more important.” How wrong he is. Cerf’s line of thinking eviscerates the Internet -- the wonder of the modern world he helped build. Cerf argues that humans have the right to “lead healthy, meaningful lives,” including having “freedom from torture or freedom of conscience.” Yet, we live in the 21st century: It’s hard to see how, among people whose economies are developed enough to afford them communication devices, Cerf would excuse governments that curtail their citizens’ freedom and right to use the ultimate communications tool -- the global network of the Internet. In fact, in underdeveloped parts of the world, the cost to have a cell phone that connects to the Web can be quite affordable.

I’m not arguing semantics here -- if our society excludes the Internet from the fundamental rights of human communication, we also excuse totalitarian regimes like Iran’s from any repercussions when it comes to blocking that avenue of human contact. It’s a dangerous compromise to make in a world that only gets more digital with each passing day. And it also conveniently excuses the free world from having to do much of anything about it. We wouldn’t forgive Iran if it threw 30 million citizens into solitary confinement -- so why would we ignore it when the Iranian government effectively cuts the entire population off from the outside world, to stifle their voices during a critical electoral cycle?

from Paul Smalera:

Facebook.coop

Facebook shouldn't pay its users. Its users should pay to own Facebook.

“Facebook was not originally created to be a company,” founder Mark Zuckerberg wrote in his letter to investors announcing the IPO of his already hugely successful and profitable company. “It was built to accomplish a social mission — to make the world more open and connected.”

Facebook has succeeded wildly, despite internal admonitions that its “journey” is only 1 percent finished. Journalists have latched onto Zuckerberg’s statement that Facebook wants to “rewire” the way the world works. In a world of thousands of self-anointed “social media experts,” only Zuckerberg can claim to have basically invented what the world thinks of as social media. He has etched himself into the timeline of human innovation.

Pity then, that Zuckerberg hasn’t turned his talents or attention toward Facebook’s financial underpinnings. After all, an IPO? How ho-hum can he get? If Mark really wants to accomplish his social mission with Facebook, he should share the company’s ownership with the people who helped him create it. Not just his Harvard contemporaries. Not just the programmers. Not even just the venture capitalists.

I’m talking about us. All of us. The users. Facebook should be a user-owned, user-managed company, run for the benefit of users. For the Facebook, by the Facebook. The company should be a cooperative.

Before I explain further, let me lay out the case in four simple points:

from Business Traveller:

What happens when the meeting’s over?

That’s when the fun starts, says the boss of a new social network for business travellers. But how is Whenthemeetingsover.com carving a niche among the Goliaths of social networking?

Socially you’re likely long-entrenched in Facebook; reserving LinkedIn to connect with a larger professional network. You probably also dip into user-generated TripAdvisor for opinion overload on restaurants and hotels; the well-organised among you might use the travel-planning and itinerary sharing networks Dopplr or Tripit, and be eyeing up the just-launched Gtrot.

Younger networkers may be hooked into WAYN (Where Are You Now); others may cruise location-based FourSquare to give or get info on almost every venue and attraction.

What’s missing? Stuart Dawson, CEO of Whenthemeetingsover.com (WTMO) has bundled what he would argue are the best and most relevant attributes of the above into a one-stop, go-to portal for business-travelling social animals.

“LinkedIn is amazing for building your network and building a business,” explains Dawson. “But what it doesn’t give you is the human element. On the flipside, Facebook is amazing for that human banter element, but it doesn’t lend itself to business.”

The seeds of WTMO were planted when international business traveller Brian Catton, now the site’s chairman, was staying in a Thailand hotel a few years back. He spotted a fellow guest carrying a tennis racquet. Catton wanted a game badly, but being British was typically reluctant to ask. Bucking the trend, he did approach the Swedish man; not only did the pair enjoy a great game of tennis, but went on to do business as both had interests in property.

This got him thinking. How many millions of people must be in every city at the same time that you may want to meet, wondered Catton? Not being au fait with the world of the web, the idea could easily have flickered and died, but through a mutual contact, integrated marketing man Stuart Dawson got involved.

from Reuters Investigates:

Myspace and Facebook: the numbers tell it all

Yinka Adegoke delves into what happened at Myspace in his special report today: "How News Corp got lost in Myspace."

Weak technology, management in-fighting and a rival called Facebook led to the rapid decline of the once dominant social network.

Read the special report in multimedia PDF format here.

These two graphics are telling.

from Chrystia Freeland:

When the hacker ethos meets capitalism

The uprising in Egypt has provoked the familiar “realism-versus-idealism” foreign policy debate in many Western capitals, as diplomats and politicians struggle to balance their ideological sympathy for the protesters against fears of chaos and the threat of a future anti-Western and anti-Israel policy from Cairo if the people do win.

What we have paid less attention to is that the demonstrations have forced some of the world’s hottest technology companies to engage in a very similar debate. The conclusions these technorati end up drawing may be as significant as the verdicts of Western governments. This new intellectual battleground is a further sign that in the age of the Internet and the global economy, foreign policy doesn’t belong just to professionals or to states any more.

The quandary Egypt poses for technology companies – particularly the power troika of Google, Facebook and Twitter – goes far beyond the classic corporate social responsibility concerns that have become standard operating practice at big multinationals.

On one hand, the Egyptian revolt and the ways in which it has been facilitated by the Internet is the apotheosis of hacker culture and its worldview. That is the powerful conviction of the digerati: that they are on the side of freedom, small-d democracy and of doing good in the world. This self-image is easy to mock – that Google pledge to “do no evil” makes a pretty juicy target for satirists – but it is also deeply felt.

Egypt has helped confirm this view of technology companies being on the side of angels. For example, Wael Ghonim, the Google executive who helped organize the protests, was jailed and has emerged this week as an important face of a movement looking for leaders. Before that, there was the much publicized workaround that Google and Twitter technologists devised to help evade the Egyptian government’s communications crackdown. As Adrian Chen noted on the Gawker blog, “the amount of positive press generated [for Facebook] by Egypt’s uprising ... could only be greater if Mark Zuckerberg had parachuted in and started beating back riot police himself.”

On the other hand, the problem for technology companies in many parts of the world is that doing good – or even doing no evil – is very much in the eye of the beholder. The views, and the self-interest, of twentysomething programmers in Silicon Valley, or in Bangalore, India, are unlikely to coincide with those of eightysomething dictators. And that can spell trouble for companies intent on building a global business.

“Facebook is trying to expand into China, so it is hard for them to take the side of the protesters,” said Evgeny Morozov, author of The Net Delusion, which argues the Internet will not necessarily make the world a freer, better place.

from Breakingviews:

Goldman’s old-school Facebook deal sets new tests

Goldman Sachs' old-school Facebook deal brings a new set of challenges. The bank is raising up to $1.5 billion from clients to invest in the social network while putting in $450 million itself. Like Morgan Stanley's reported deal with online coupon service Groupon, it looks like classic merchant banking. With hot firms in the driver's seat, however, the banks could find themselves in for a wild ride.

Internet darlings, with their growth, profitability and cash, face little pressure to go public yet still have some use for what a fundraising can provide. So instead of an IPO, they rely on so-called D-rounds. This allows them to raise money at favorable valuations for internal use, while buying stock back from employees or early-round investors who want to cash out.

It's a calculated pay-to-play on the banks' part. By stumping up for Facebook and Groupon, Goldman and Morgan Stanley put themselves in a strong position to underwrite the eventual IPOs. They make the tech firms happy by providing stronger headline valuations, in Facebook's case $50 billion. And the intermediaries score points with their well-heeled clients by enabling them to put money into hard-to-access investments.

Finally, the deal appears to align the interests of Facebook, Goldman and its customers. During the dot-com bubble, stocks of unprofitable -- and often revenue-less -- companies were floated cheaply to orchestrate a first-day pop. But when Facebook does go public, Goldman should be well incentivized to convince the market Facebook is worth well north of $50 billion.

The arrangement isn't all rosy, though. Regulators may question whether Goldman's Facebook collective skirts the spirit of a rule that private companies either disclose more information or go public once they reach 500 investors. What's more, it creates a potentially risky triangle of expectations that may make setting a stable IPO valuation more difficult.

Investors are baking an extraordinary amount of growth -- far greater profit gains than the average company for a decade -- into their Facebook valuation. It's true, many scoffed at the $15 billion valuation ascribed to the social network following Microsoft's investment three years ago. But any sign that Facebook is slowing down could create headaches for the bank now at the center of the situation. Another year, another sticky situation for Goldman to manage.

from Breakingviews:

Will 2011 be the year that Facebook’s value gets real?

By Robert Cyran and Rob Cox

Facebook may at last become a real, rather than virtual, money spinner in 2011. The social network doesn't need capital to grow, but expectations from backers and employees for an IPO are too high for founder Mark Zuckerberg to ignore. There's just one challenge: trading in Facebook's unlisted shares values the website at more than $40 billion. Getting to that number requires some astonishing growth assumptions.

That's not to say it's impossible for Facebook to attain a public market value at least as big as its current implied worth. Facebook is both valuable and becoming more so. It has more than 500 million users and it's adding thousands by the minute. But rarely has a private company attracted such a large -- and relatively liquid -- financial status as Facebook.

So how can the firm founded in a Harvard dorm room fill out its $40 billion-plus britches? Facebook should double revenue to $2 billion this year. If its margins are in line with Yahoo's, that would suggest it makes about $300 million in profit. Thus its implicit valuation is somewhere around a stratospheric 133 times earnings.

But there's another way to look at it. Using a standard earnings growth model, Facebook could warrant its private-market value if it can grow its bottom line more than 25 percentage points faster than the average company for the next decade. Few firms ever manage to sustain this type of performance. Microsoft and Google may be among the few that managed something like it in their heydays.

Put another way, despite consumers spending perhaps a third of their media time online, the Internet accounts for less than 15 percent of all advertising dollars. Simply closing this gap would amount to $50 billion in additional ad revenue, according to Morgan Stanley. If Facebook could nab half of that, at Yahoo-style profit margins it would earn some $4 billion in annual profit -- possibly enough to justify its valuation.

It's still a very long shot. Even though Facebook's web audience comes second only to Google's, extracting more revenue from users could be problematic and set off privacy concerns. Users may simply grow fickle, as they did over at MySpace. And advertisers may never become as comfortable advertising online, particularly in the racier medium of social networks, as they are on, say, network broadcasters or billboards.

from MediaFile:

Berners-Lee: Apple, Facebook are enemies of the web

2010 is a great time for the web. Innovation is thriving as new services and content flourish on smartphones and laptops, thanks in good part to industry leaders like Apple and Facebook.

But according to Tim Berners-Lee, - often called “ the father of the web” - the open and democratic structure of the web is threatened by sinister forces trying to redesign the web in ways that make it more closed for their own personal gain. These enemies of the web don't just include totalitarian governments. They include industry leaders like Apple and Facebook.

As the web turns 20, Berners-Lee has written a 3,800-word article for Scientific American celebrating its achievements and documenting threats to its future. Most of his words are dedicated to the threats.

The Web as we know it, however, is being threatened in different ways. Some of its most successful inhabitants have begun to chip away at its principles. Large social-networking sites are walling off information posted by their users from the rest of the Web. Wireless Internet providers are being tempted to slow traffic to sites with which they have not made deals. Governments—totalitarian and democratic alike—are monitoring people’s online habits, endangering important human rights.

If we, the Web’s users, allow these and other trends to proceed unchecked, the Web could be broken into fragmented islands. We could lose the freedom to connect with whichever Web sites we want. The ill effects could extend to smartphones and pads, which are also portals to the extensive information that the Web provides.

Social network sites like Facebook, Berners-Lee says, are silos, connecting data and content only within its walled gardens. Apple's iTunes traps people into a proprietary store. Even Google, whose search revenue is dependent on an open web, is chided for abandoning its support of Net neutrality. All lead to a fragmented web, damaging the "single, universal information space" that made it work in the first place. They can also breed monopolies, which the web was initially designed to resist.

These tech giants might dismiss these arguments as alarmist and argue that their success shows that people are responding to the way a less-open web is evolving. Their counter-arguments might be more persuasive if the Cassandra making the warnings wasn't Tim Berners-Lee.

Mark Zuckerberg, Steve Jobs and Eric Schmidt all owe a huge debt to Berners-Lee and everything he has fought to achieve over the past two decades. They know they would be nowhere without the web as he designed it – even as they pick apart at the very principles of openness that made the web the web.

Facebook group defends “harassed” BP

BP’s chief executive Tony Hayward branded “the most hated man in America” may be surprised to find himself cast in the role of victim by a growing clan of web-based supporters on Facebook.

One such group ‘Support BP’ calls itself the defender of an “undeservedly harassed institution” and seeks to show that the public opprobrium BP faces over its now 60-day-old Gulf of Mexico oil spill is not universal.

Members have been increasingly vocal since a succession of strong rebukes of BP by U.S. President Obama and lawmakers at Thursday’s congressional hearing, which they are calling a “lynch mob”.

The outburst of sympathy follows an apology to Hayward from Texas Republican Representative Joe Barton on Thursday, later withdrawn, for having to agree to a deal with President Obama to set up a $20 billion fund for Gulf claim damages.

Some of the Facebook posts echoed this same spirit of regret: “My apologies as an American to Tony Hayward for the rude and insulting conduct as well as the rush to judgement by U.S. politicians on 16/7,” wrote George Gray, 50, from Pennsylvania, referring to Thursday’s hearing.

The bulk of the group’s posts are written by Americans.