Facebook IPO Lessons

Like most people, I had the opportunity to review Facebook’s IPO filing yesterday and admit that, like Apple’s recent earnings announcement, this is pretty damn impressive.

Here are a couple of lessons worth reinforcing:

1) People’s view of what is normal and acceptable in emergent online activities is constantly evolving. What Facebook deserves a lot of credit for is not allowing itself to be held back by what a small and vocal group of critics said they should not do. As a result, by constantly pushing forward, and making mistakes, Facebook created a new normal that in retrospect would never have been accepted even 5 years ago.

2) Zuckerberg, like Larry Ellison and Bill Gates most notably, retained tremendous control of their respective companies through outsized stock ownership and voting structures that assured them total control of their destiny. Shareholder rights advocates will say that this is precisely what needs to change about corporate America but stock ownership is not a democracy where every vote is equal… but it is also a structure that shareholders opt into when they buy stock in a company.

3) Don’t discard old business models because they are old… Silicon Valley is home to the shiny new object syndrome and we often forget that old business models are referred to as old because they WORK. Facebook was criticized for not having a business model, well they did and it was a tried-and-true one… advertising. Turns out that a company can still make a boatload of money doing this and it doesn’t require a 60 slide powerpoint deck to explain it.

4) Raise boatloads of money when it is available to you, and do it on your own terms. Facebook benefited from a wide range of factors that drove interest in the company, not the least of which was that for private equity investors who had large funds to put to work, there were few options that scaled to the degree that Facebook did. These investors are not looking for the returns that early stage VCs are, so they were happy to put large amounts of capital to work at high valuations, and it appears that these bets will pay off. Mutual funds and other traditional investors that bought stock in the private secondary market that emerged were also reacting to a scarcity of investment options. The real lesson here is not to be constrained by the traditional venture capital cycle when macro conditions create an environment that allows you to be non-linear.

Lastly, I’ll refrain from repeating the oft-repeated mantra about hiring the best people… would you hire anyone but the best? I hate it when people say things which fall into the stating of the obvious category.

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G+, Twitter and Tumblr are Biggest Losers

Like a lot of my peers I have been immersed in Google Plus for the last week and I have to give credit to Google for really getting this one right. The sharing mechanism is very accessible, Circles offer welcome segmentation of your social graph, and most importantly, it’s fun to use.

Much of the commentary has centered on what a successful Google + means for Facebook but I disagree that this is represents a severe near or medium term threat to Facebook. What it does harken is a form of arms race between the two companies that is ultimately good for users.

There are two major losers worth highlighting, Twitter and Tumblr. We won’t see the effects of G+ on either service for some time but I forecast that as G+ mainstreams that Twitter and Tumblr activity will plummet.

Twitter’s defining feature is both it’s strength and it’s limiting factor, 140 characters. Tumblr use over time has grown as Twitter itself grew, and I think a major factor in their growth is the mainstream acceptance of short form sharing. Like a lot of people I started to use my Tumblr blog to share links with short text snippets that provided context, and I enjoyed the photo and video sharing which embeds the media blob rather than link to it.

I wrote about my shift to Tumblr here, saying last year that:

Twitter and Facebook will continue to be important channels to push content through but rather than creating content in those networks I will, whenever possible, post through Tumblr. I will continue to “talk” with people through social networks and Facebook has some unique capabilities that I will take advantage of.

G+ is essentially a better Twitter+Tumblr for me than combining the two services could ever be. I get the realtime effects of an activity stream on top of easy content sharing tools, and I get the ability to provide a high degree of context in both what is shared and in the interaction because there is a threading model for replies.

Lastly a word about Circles. Google is providing a good starting point with Circles but it’s not the end game because being successful with Circles is entirely a function of your discipline in maintaining Circles, it’s like email folders in this respect.

We really need to get to a point where dynamic Circles can respond to a person’s interest graph as well as their social graph. In this model content would be shared not on the sole basis of who I targeted with it but as a response to what people are actually interested in.

I am making an effort to maintain my Circles but I don’t enjoy it nor do I believe that it is a model that the mass market will adopt, even though the notion of segmenting a person’s social graph is entirely reasonable and highly practical.

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Facebook Questions

Facebook launched a really interesting Questions product a few days ago and after trying it out I have a couple of thoughts on it that I would like to share. Simply put, this service builds on a well documented user behavior exhibited by millions of Facebook users who on a daily basis poll their “friends” using status updates that are questions.

Facebook Questions enables individual Facebook users to ask questions that are then displayed in the public news feed. Replies to the question are threaded under the originating question and the whole feature area is exposed to Facebook’s search function. Anyone viewing the question and the threaded answers can click on buttons to indicate whether or not the question was “helpful” or “not helpful”.

The integration of the feature (service?) is in the sidebar, the news feed, profile area, and a new Questions feature area devoted exclusively to Questions content. BTW, I really don’t know the vocabulary that Facebook uses in reference to their user experience, any online links that lay it out would be appreciated.

Question is not something that companies can readily take advantage of because Questions is not integrated with Community Pages. Each question that is launched also exists exclusively within in full public view, meaning questions cannot be directed exclusively at the follower community for a particular profile.

More significantly, Questions focuses on questions with light, short-form answers, and what that means is that Questions is not applicable for use cases like customer support and social commerce and while there is a “helpful” and “not helpful” button on each reply the fact remains that this is not outcome oriented and no “official answer” capacity exists. In other words, there is no capacity for a customer service rep for a company, in the case of a service and support use case, to act as a moderator for content concerning their products.

While the above is all true I don’t think it really matters to Facebook because they clearly have not conceived this service to be a company-to-person communication tool but rather a person-to-person one. They are committing that Questions will be available in community pages and have an API, but that is a future deliverable and if history is any guide… subject to change.

Facebook has two very distinct competitive targets with Questions, the first is obviously Google. A significant percentage of the searches performed on Google and other search engines are short form questions, as in “what the best taco truck in the Mission?” and “who is the guy in the Dos Equis commercials?”. By excluding Questions from search indexes Facebook is clearly indicating that they want that search traffic to occur inside Facebook rather than in a search engine that brings a Facebook user in.

Facebook’s product roadmap is an all out assault on search engines and by establishing a primary objective of diminishing search engine importance in connecting people with Facebook content. They very clearly has stated that they want people to dwell inside of Facebook longer and use Facebook’s search capability to find content, Questions is a powerful weapon in their arsenal.

This product also represents a symbolic defeat for Microsoft with their very highly regarded Bing search service… it was Bing who first went all out with an ad campaign highlighting the weakness of search as a “decision engine”, which is another way of highlighting the importance of the Q&A search behavior. If anyone should have launched a large scale Q&A service around a search engine it should have been Microsoft… once again snatching defeat from the jaws of victory.

The second category of competitor is the dedicated Q&A site, of which Quora and Hunch figure prominently as well as Google’s Aardvark and Yahoo’s relaunched Questions service. it’s not unexpected that the Q&A sites have articulated a spectrum of reasons why what Facebook is doing is not competitive with them but I really don’t think they believe that because it very clearly is competitive.

I really like Quora because they have a kick ass user experience and some remarkably good algorithms for suggesting people I should follow as well as building my own follow community. However the thing about Quora that wins hands down is the quality of the content, which is no doubt a reflection on the quality of the user community that they have attracted. Over time this is harder to sustain while at the same time Facebook’s Questions corpus will feature higher quality providing they work on the mechanisms for enabling efficient surfacing of good content.

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I like Facebook Questions a lot but am also pragmatic enough to recognize that it has some pretty big limitations when it comes to anything but person-to-person Q&A interactions, and their strategy of excluding external search from the content is also a risk because even the most die-hard Facebook users have ingrained behaviors that involve external search for finding content. Facebook’s search is good but it’s not the one I reach for first when looking for something.

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You Really Do Live Forever in Facebook

SafariScreenSnapz002.jpg Today Facebook suggested that I write on my friend Jeffrey Walker’s wall… which made me sad because Jeffrey died last year after a long struggle with cancer. I clicked on his Facebook profile and sure enough, lot’s of his friends have been leaving messages as if he were still with us, and it was nice to read the notes because it reminded me of what a good and decent person he was.

Interestingly, I could find no data element that denotes someone is deceased… you just live forever unless your account is deactivated. I wonder how that will evolve as Facebook grows and, well, more people die?

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Facebook Connect Is A Huge Success

I’d go with that assessment. Connect has made identity/authentication so much easier for third party app providers and at the same time has struck a serious blow to Google in that these relationships are not transactional and it is a zero sum game. With FB adoption where it is and so much momentum on the Connect initiative, there is little incentive for third party service and app providers to go with any alternatives.

As much as Beacon was Facebook’s low point, that service’s replacement, Facebook Connect, is vaulting the company to new heights six months after its November 2008 launch.

[From Facebook Connect Is A Huge Success -- By The Numbers]

The long term strategic value of Connect is in layering on additional service offerings that can slipstream into application services. Identity and authentication are clear wins today, profile data is increasingly accessible, and long term that ability to build in payment services, advertising network extensions, analytics, and CRM capabilities is entirely within their grasp.

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Facebook Connect and Anonymity

Image representing Facebook Connect as depicte...
Image via CrunchBase

As I look back over the evolution of blogs, community, and commenting/engagement on media sites, I have a mixed feeling about anonymity.

On one hand the ability to use a pseudonym has encouraged participation where it might not happen, but on the other it has enabled a raucous and at times a very mean spirited experience. Just take a look at the comment stream on any story on SFGate and you will see this in action, the result being that the comments end up not being informing and additive to the original story but rather a sideshow of people shouting at each other.

When a service is Facebook Connect enabled the login process for the subset of people that want to use it strips away pseudonyms and exposes your real name and profile information. The result is that we will end up with a two tier community model and this could be a very good thing.

Most people will be more thoughtful and, hopefully, cordial when their comments are attached to them as a person rather than the pseudonym “asshatman69″. People who are interested in civil debate and genuine participation over ranting will value services that have a growing population of Connect logins and as the pendulum shifts the result will be that the quality of the overall debate will rise as a consequence of the natural discounting of pseudonym posted comments. Real people with serious things to say will crowd out the shouters.

It also goes without saying that the ability to aggregate a stream that builds around a person rather than a site will enable new discovery capabilities.

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Social Network Interopability

I think that pretty much from the beginning there existed a tension between users and software developers around the notion of interoperability. Users want it while developers more often than not view it as a threat to their strategy to lock users into their apps and services.

With social networks the tension has increased because users simply don’t have the bandwidth or desire to manage multiple networks, which only fuels the developer fears that interoperability is a threat so the way to win is to run faster on the hamster wheel to develop more features and services which will drive users to their service and quench the desire for competing services.

Users still want interoperability whether in the form of directed services like identity and interoperability or more strategic features like messaging.

I noticed something with the latest version of TweetDeck that demonstrates how interoperability is good for users and for developers. The integration of Facebook alongside Twitter has, for me, resulted in my re-engagement with Facebook on several levels. Not only am I actively monitoring messages in Facebook as a result of the added feature pane in TweetDeck, but I’m an “retweeting” Facebook status messages to Twitter. Here’s a screenshot from my rig (in the interest of privacy, I removed my direct messages pane).

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Lastly, I find it really interesting that desktop client apps are taking a leadership position in driving service engagement and now interoperability. I wrote last year about how desktop and mobile “satellite” apps were changing the way I use popular services, I’m more convinced than ever that developers have to court this trend as a central strategy for consumer AND enterprise users.

Facebook and the Nature of Power Struggles in Social Networking

Robert may well be right in his analysis but his comment about Facebook always pissing off its users reveals another dimension to this current kerfuffle, who really owns Facebook?

Before we get deeper into this, remember that Facebook has always pissed off its users. First, you’ve gotta realize that in Facebook’s life it will go through at least seven phases. We are moving from phase four to phase five right now. In each phase change people have gotten pissed off.

[From Scobleizer: Technology, innovation, and geek enthusiasm » Blog Archive Why Facebook has never listened and why it definitely won’t start now «]

From the moment that social networks achieved critical mass there has been an uneasy conflict between users and the sponsoring company over ownership. Clearly Facebook owns the intellectual property that is Facebook but without all the user contributed content it would be quite meaningless, therefore the user community believes quite passionately that they are not subservient to the company in this regard and from time to time there erupts an insurrection.

Whether it be over data security and privacy, content controls, third party service integration, or user experience, all of those prior incidents point to a struggle between two groups that are more equal and co-dependent than either realize.

What the user community doesn’t accept is the notion that the only rights they have are those granted by the company underwriting the platform. It’s not a democracy and there is no Bill of Rights that a separate “judicial branch” will interpret and enforce. Users want a voice that has the power to override what the company believes will be strategic decision setting with profit and long term growth at its core.

For their part, the companies behind these networks seem oblivious to the fact that the very social connectedness they are enabling provides the user community with a lot more leverage than companies are used to dealing with. What starts as individual complaints can quickly snowball into large public protests that effectively suck all of oxygen out of the message cycle and take control of the message away from the company.

In the end this will all go away like previous protests because each individual user has far more invested in their Facebook experience than Facebook the company has invested in them. It goes against every grain of my belief system to suggest that the individual user doesn’t matter but it’s likely true here as it has been in the past and it will be so until Facebook crosses some undetermined and unpredictable threshold that constitutes a tipping point that drives users to a compelling competitive option.

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Facebook Tries to Woo Marketers

Like a lot of people I am skeptical of advertising potential in social networks, insofar as it being massively disruptive to traditional display ads. The reason for my skepticism is simple, Facebook and Myspace both have positioned their ability to target based on profile data and activity as far superior to dumb display ads but the data doesn’t suggest their ad systems are more effective than display ads.

Facebook has a lot to prove with the new ad format, which it began quietly testing in August and started making available to all advertisers this month. The company says 70 of the U.S.’s 100 largest advertisers have advertised on its site since 2007. But its share of total number of U.S. online display ad views was just 1.1%, according to market research firm comScore Inc., in its most recent report in June.

[From Facebook Tries to Woo Marketers - WSJ.com]

It may well be that the schism here is that the user experience is so fundamentally different than a content site, therefore any form of ad detracts from the user experience in such a way that repels users rather than just making them ad blind. We have seen countless examples of social network users rebelling at efforts to monetize their activity, proving once again that Facebook doesn’t own Facebook but rather the millions of people who use it own it.

Having said that, the fact remains that Facebook in particular is generating some decent revenue and should continue to grow, even if that growth doesn’t come at a rate that Zuckerberg doesn’t find acceptable. Despite his pronouncements that revenue is not their focus, they seem to be expending a lot of energy over the last year in mechanisms that are solely focused on extracting dollars from advertisers.

The advertising market really does need something more effective than display ads and despite years of talk about behavioral targeting the fact remains that there hasn’t been a lot of that going on and contextual advertising continues to dominate the stage.

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Censorship For Some but Not Others

“Senator Lieberman stated his belief, in a letter sent today, that all videos mentioning or featuring these groups should be removed from YouTube — even legal nonviolent or non-hate speech videos,” the statement said. “While we respect and understand his views, YouTube encourages free speech and defends everyone’s right to express unpopular points of view.”

[From YouTube won't take down all Islamist video - UPI.com]

I guess Lieberman should have had the Chinese government send the letter to Google, those videos would be gone gone gone by now. This is the problem that Google created for themselves when they decided that censorship with a business objective wasn’t such a bad thing.

I’m pretty much black-and-white on this specific issue, if your group is an affirmed terrorist group then you have opted-out of civil society and don’t get to enjoy privileges like free speech. They are privileges in this context by the way, the Bill of Rights affirms rights you are endowed with and government must demonstrate a compelling interest before restraining you, but when it comes to private companies and properties they own, the only rights you have are declared in the terms of service and in a patchwork of laws created to address individual rights, e.g. data privacy, in a commercial setting.

The last time I checked, Congress has passed no law that permits as-Sahab or al-Furquan to enjoy the same protections as I do when posting to Youtube. Google is wrong on this issue, just as they were with China and ironically for the same reason even though it would appear the roles are reversed. They allow the Chinese government to exercise censorship for the purposes of control and they are allowing terrorist groups to operate on Youtube in a manner that promotes their own fascist agenda.

On the other end of the spectrum we have Facebook and Myspace deciding for us that some offensive language must be bleeped out. I actually find this just as troubling and I’m not hesitant about observing that I have put myself in a moral quandary here by endorsing policing of content in one instance while not in another.

If you ever get the itch to use the word “yuwie” or perhaps make reference to “wadja.com” – don’t bother. “Some of the content you included in this message is not allowed by Facebook,” is the message you’ll get in response. Both of the above are small social networks, but you can’t even send a message about how something disgusting (like yuwie.com’s site design) made you say “yuwie, that smells bad!” On principle, the whole thing stinks.

In thinking it through I find myself drawing a line between private messaging systems and broadcast networks. While it is morally repugnant for Google to allow terrorist organizations to use Youtube to broadcast their propaganda, it would be equally repugnant for Google to filter out these same groups from Gmail messages. Google has a responsibility to monitor Youtube, while they have no business snooping in anyone’s email without a court order to do so.

Facebook seems to be taking an interesting stance, aggressively filtering private email messages while not seeming to care about what is posted on public message boards. While Marshall and I may disagree on the finer points in this debate, I do agree with him that there needs to be a much greater degree of transparency about how social networks are operating and what rules they are enforcing.

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