Netvibes Shoots One Over the Bow

"Facebook does not currently allow outsider providers to access the News Feed. In other words, Facebook won’t let us display your News Feed from the front page in our widget (or change your status for that matter.) If you would like to see the News Feed in your Netvibes Widget, please join our Facebook group on the issue or tell Facebook!"

While it’s interesting that Netvibes released a Facebook Widget, what is more interesting to me is the larger struggle over how open Facebook really is. It’s one thing to be open as in anyone can write an app for Facebook, but on another level it’s really quite a closed platform because Facebook itself decides what to enable and what they don’t want to enable.

If Netvibes is successful in formenting a large swell of user demand to unlock the news feed, well it will be conclusive proof that social networks really are owned by the members and not the company providing them, however in doing so Facebook will be releasing what they themselves acknowledge is the secret sauce of their success, the social graph.

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The Pull Factor in SaaS

My good friend Charles Zedlewski put together a great analysis of SG&A costs at the four major SaaS business application companies that are either public or have filed to go public.

"The true factor driving SG&A for these SaaS companies is growth, not scale. This is logically consistent as the economics of most any subscription business is based on the cost to acquire a customer versus the future returns of that customer relationship. I took the financials for all four companies and lined them up not based on year but based on when they are at a comparable size (comparable stage in their evolution)."

Charles is an excellent analyst (perhaps he missed his calling as the next Chuck Phillips!) with an ability to quickly get to the essence of the issue at hand. More significantly, he has the rare ability to abstract observations into "what it means" statements that can be applied across an entire industry segment.

The points that Charles makes about SG&A being a pull factor for growth in these companies is irrefutable. Having said that, I’m tempted to say "of course sales expenses drive growth!" but that misses a larger point. Since the inception of SaaS we have been told that it’s a more efficient business model yet the numbers don’t lie, SaaS is dependent on disproportionate investment in sales at the expense of R&D.

You really see this played out to it’s extreme with Salesforce.com, where SG&A is 67% of the P&L, versus 24% for SAP, and R&D is 8.8% and 14% respectively. Perhaps it apples to oranges given the legacy code that SAP has to support, so substitute your own favorite software company and compare the numbers.

The minute any of these companies turn back the dial on sales and marketing the growth falls almost immediately. This is important because in the public markets these companies are valued not on current cash flow but on growth as a proxy for future cash flow.

In the final analysis I would suggest that R&D investment is a form of long term savings for companies, as opposed to sales expenses which are, for lack of a better term, unlevered in the larger business model.

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More on That Bubble 2.0 Topic

Eric writes an interesting post about the Dvorak "we’re in a bubble and it’s gonna pop" dustup.

I have yet to see one piece that mentions “bubble 2.0? in a larger economic context. Scoble’s talking about how John’s got the wrong bubble. Marshall’s slappin’ John down. Lots of folks are piling on. And not one comment has been made about the housing market, sub-prime (and prime) loan problems, 75 dollar oil, a fed that claims to be still leaning toward tightening, private equity bubbles — nothing! Apparently, lesson #1 of “Bubble 2.0? is that the entire twitter-facebook-youtube-google driven mess lives in complete isolation.

He’s right. on all points:

  1. Web 2.0 companies are not dependent on access to debt markets so the earthquake that started with subprime that is being felt by the LBO guys does not impact them. You could drill into the minutae and find points of impact but the fact remains that most tech companies large and small are not dependent on material debt financing with the exception of equipment and facility financing for the larger companies.
  2. Web 2.0 companies are not dependent on logistics so oil prices don’t impact them (in a roundabout way it does because datacenters are dependent on electricity which is often generated from natural gas, but those markets are price regulated).
  3. Housing market meltdown not an issue for Web 2.0.
  4. Weak dollar negatively impacts companies that are reliant on outsourcing but they still come out ahead given the wage disparity. For companies that market to non-U.S. markets the weak dollar helps them.

It’s a Bubble, We’re All Gonna Die!

"Every single person working in the media today who experienced the dot-com bubble in 1999 to 2000 believes that we are going through the exact same process and can expect the exact same results—a bust. It’s déjà vu all over again."

Dvorak’s MO is to crap all over everything in the hope that he is eventually proven right. With regard to the last bubble, it’s often lost in these rants that we saw companies like eBay, Google, Yahoo!, Amazon and literally scores of successful companies that we collectively use on a daily basis today (anyone plan using a travel agent anymore, how about your last 10 purchases… any online?).

Is there a bubble? Does it really matter even if there is? Maybe the bubble that enveloped Dvorak in the mid 1990’s is what is permanently busted?

PS- It doesn’t escape me that Dvorak’s rants (e.g. the iPhone will bomb) are a tactic to drive page views as he increasingly becomes irrelevant in the broader marketplace.

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