In addition to the indomitable nature of the human spirit, history has also borne witness to the ways in which moments of crisis present opportunities for innovation, reinvention, improvement, and transformation – at the personal, enterprise, and community level.

Along with the more obvious (and worthy of support) Nonprofit relief organizations putting their shoulders to the wheel during this challenging period in world history, a number of commercial enterprises and other private ventures, less accustomed to tackling this sort of circumstance, are rising to the test and inspiring their peers and partners to seek out new models in collaboration, community, and constructive social action. 

Médecins Sans Frontières, the World Health Organization, the Red Cross, and others are doing the admirable work for which they were founded: providing services and support to the neediest among us, while also offering vital research and data to help enlightened nations accelerate their journey toward community, social, and fiscal health. Other entities are meanwhile also studying and leveraging their unforeseen circumstances in a noteworthy fashion. As we continue to travel along this unpaved path, possessing only a folkloric sense of our destination, and with no knowledge of the distance or time that we will be traveling, the responsiveness and visibility of many brands and entities will become case studies in corporate social responsibility, stewardship, brand positioning, sustainability, customer relations, and even profitability.

Sometimes a small risk is worth it, if the intent is good, and the initiative is thoughtfully manifest.

The simple yet important early actions taken by numerous grocery brands ( Trader Joe’s, Giant Food, Costco, Target, Whole Foods, to name but a few) to accommodate the higher risk members of our population by establishing special “seniors and immune-system compromised citizens” shopping hours set a tone of thoughtful accommodation that deserves mention. The goodwill garnered was a great bonus, in addition to any maintained or even increased sales volumes. While many questions were still being formed as to transmission, safety, and other considerations, many brands made decisions to welcome, accommodate, and protect those at higher risk, rather than wait and see. Of course, hindsight being what it is, emerging data might have shown the actions to have been somewhat dangerous or foolhardy, but that was not the case this time. Solid protective measures were taken (social distancing, masks, wipedowns, etc), and it was a win-win for all. Sometimes a small risk is worth it, if the intent is good, and the initiative is thoughtfully manifest.

 

An elderly gentleman, wearing gloves and mask, prepares to enter a grocery store

 

In the absence of clear and timely support action from the Federal Administration, commercial brands such as Crocs, Starbucks, Garnet Hill, and The Company Store  are donating their products to frontline workers, while brands including New Balance, Fanatics, Hanes, Razer, and others have shifted production to making masks for frontline workers. Numerous other companies have donated funds to the cause. This is the best of corporate social responsibility, but it has been necessitated largely because of national government failure to proactively and persistently address a crisis that was foreseen years ago.

 

As and when nations begin the laborious climb out of the present quagmire, it will be important to watch and learn from those infrastructures initiating methodologies that prove most successful at lifting up the social and fiscal health of their citizenry.

Innovation is often manifest at times of highest urgency, and always best realized at moments of purest intent.

Educational systems have meanwhile not been idle. While public and private schools alike scramble to find new models to minimize the disruption to student curriculums in 2020 (and beyond?), some standouts deserve mention: Logitech  is giving k-12 teachers free webcams and headsets as they transition to virtual teaching. Audible  is making hundreds of their audiobook titles available to students for free. Google, Zoom, and Microsoft  are all offering their online meeting and communications tools for free. This is perhaps where we can best see how stewardship and social responsibility can convert fluidly into opportunity. The move by Zoom to take the lead in offering free online learning and meeting facilities to K-12 institutions, notwithstanding privacy and security concerns that they aggressively addressed, skyrocketed the company’s valuation, and it remains strong. At the same time, competitor brands were inspired to not only step up and offer the same deal, but their go-to-market strategies for feature and function improvements were also accelerated and improved. The challenge laid down encouraged a whole fleet of online communication brands to rise together. Innovation is often manifest at times of highest urgency, and always best realized at moments of purest intent.

 

No alt text provided for this image

 

Schools are scrambling to develop new lesson plans, leverage heretofore peripheral toolsets, and accommodate previously negligible considerations, as they seek to shepherd their students through this challenging period, and give them the best education possible, under the circumstances. Very recently, some school districts have given up  on the experiment, citing overwhelming logistical challenges for both teachers and parents.

Meanwhile, around the world, institutions and programs are refusing to let this crisis compromise their commitment to the highest standards in education they are capable of offering. In “better” times, many institutions struggled somewhat passively under the edicts of bureaucratic regional, State, and even national governments. Today, teachers and administrators alike are demanding the best possible support for their students, and many parents are stepping up to help in ways not seen before. Organizations such as Girls With Impact  and Coursera  are offering their curricula free of charge, and educators are collaborating with impressive transparency and a commitment to high standards in learning and social health alike. Faculty at my daughter’s school, The Ethel Walker School, have been internally sharing best practices and discoveries with enthusiasm and impressive thoughtfulness, and I suspect many other institutions are doing likewise.

 

 

It becomes clear, the more I study the varied brands, industries, and markets impacted by this epidemic, that progress and prosperity will be realized first by those entities (professional or otherwise) that embrace a culture of service and community. Transparency and collaboration will be stepping stones that elevate us from our current difficult situation; cooperation and fact-based responsibility will be the guideposts.

Companies that find themselves in suspension can either close down or leverage their skillsets to innovate and enrich their sector and, by extension, our world. In Australia, enterprises such as Passions of Paradise, Wavelength, Ocean Freedom, Sailaway and Quicksilver Cruises are nurturing the Great Barrier Reef in Australia, during the tourism industry’s absence. SodaStream  is donating to global NGO WaterAid  which provides clean tap water for drinking and washing hands. The sparkling water company, based in Israel, also recently announced its commitment to eliminate the use of 67 billion single-use plastic bottles by 2025 and to switch the packaging for all of its flavors from plastic to metal bottles beginning early next year. Meanwhile, a Los Angeles company, Orly  has reconfigured its factory to produce 75% alcohol-based hand sanitizer, and 10,000 bottles will be donated to the City of Los Angeles  for distribution throughout the city’s at-risk homeless population. These are just a few examples amidst a growing collection of case studies in community leadership and industry innovation.

What case studies have you come across that demonstrate laudable examples in stewardship, cooperation, and creative innovation, during this time when many might otherwise trend toward apathy and surrender? Is your organization doing some interesting and inspiring work? Do you have a community-building and uplifting idea that deserves to be realized? Let us know!

Transparency and collaboration will be stepping stones that elevate us from our current difficult situation; cooperation and fact-based responsibility will be the guideposts.

Microsoft just announced a chat-based enterprise collaboration tool. It’s called Microsoft Teams, and the implications are deeper than one might imagine, at first blush. Whether those implications realize themselves or not depends (of course) on how enthusiastically the market embraces this SaaS.

One’s first assumption might be that Microsoft Teams is a “Slack killer”, and this might certainly be the case, if Microsoft were to have a fantastic track record of imaginative and impactful marketing. It does not. It’s unlikely that Microsoft Teams will have much initial impact on Slack user numbers, given the fierce loyalty of Slack users to the brand. The same applies (to lesser extents) to Basecamp, Smartsheet, Asana, Podio, Trello, Samepage, Quip, Projectplace, Yalla, and, and, and…

Each of these collaboration platforms provides an experience with which its users are – for the most part – quite comfortable. You don’t often see an Evernote user of longstanding jump over to OneNote, or vice versa.

So what’s the big deal with Microsoft Teams? There are two big deals, in fact.

First, if the solution is well-thought and intuitive, and if it integrates with Office 365 in as fluid and seamless a fashion as intended, it will secure those enterprise users of the Office Suite, and prevent their adoption of the other aforementioned “standalone” collaboration toolsets. Microsoft will be strengthening its enterprise software ecosystem, not by preventing escape, but by making the notion of staying more attractive. More of a golden cage, than a walled garden.

The second implication, however, is more dramatic: Microsoft was almost going to acquire Slack earlier this year – a move I did not quite understand, given both the $8 Billion price tag and Microsoft’s existing holdings of SharePoint, Yammer, and Skype, to mention just a few. Opting to withdraw from the purchase has made a silent statement that will, I believe, reverberate through the already flawed VC world. For the past years, convention and hubris have driven the notion that companies will purchase and absorb promising or threatening products and solutions, as a matter of course and self-preservation. On balance, this has not proven as cost-effective or innovative as many have pretended. Whether intentionally or not, Microsoft, by opting to pursue internal development and release of their own Swiss Army collaboration tool, has communicated that their IP, combined with internal dev talent, are sufficiently robust to offer solutions that do not require Slack.

Admittedly, this remains a risk. Slack users tend to comprise small businesses that “graduate” toward Google suites of product offerings, rather than the traditionally heftier Microsoft suites. However, the Microsoft brand (somewhat inadvertently, I feel) has been ceding its Goliath mantle to Apple and Google, of late, and many small businesses with which I work are less intimidated by the brand than they once were.

If Microsoft manages to position their Teams offering properly, this could be the moment when all the vaporware startups out there realize they are standing in the street naked, and need to actually develop something unique and truly valuable (read: unrealizable by others without great investment), or risk being eclipsed by developers who have finally wised up to the fact that a snappy presentation does not a mighty valuation make, even if it’s in PowerPoint.

With the recent news that Motorola won a sales and  import ban against Microsoft in Germany (effectively removing Microsoft Xbox and Windows 7 products from that market), and is poised to repeat the ban here in the US, the circle is complete.

Rewind

Video and Audio Compression technologies have been developed by a host of companies over the past decades, and the result is a somewhat murky product development pipeline requiring patent licensing and cross licensing deals, the likes of which would make an LA freeway interchange look like a lonely unpaved road through the dustbowl. Add to this the fact that IP&L (Intellectual Property & Licensing) is the cash cow of many technology giants, and the prevailing practice is to develop patents for everything that can be thus recorded, in the hopes that there may exist licensing revenues somewhere in the future. These are the given circumstances for the present dance featuring Microsoft and Motorola Mobility (now under Google’s wing).

Battle Lines

As is often the case, much sabre-rattling has been going on, and clashes in court have ensued. Each side hoped that, when the dust settled, they would emerge with the upper hand. Nobody expected to outright win, but that’s not what IP conflicts are about, when the licensing giants are engaged in battle. It always looks terribly bloody and violent, and enormous (to us) sums of money are dispensed via legal teams. However, these sums are paltry, when compared to the licensing sums at stake. What’s a million or two, when one stands to gain tens and even hundreds of millions?

However, in this particular case, both sides gained and both sides lost, and now it falls to the lawyers and IP negotiators to assess where the bargaining chips have fallen, before progressing with the next stage of battle: the truce.

All In A Day’s Work

Motorola made a valiant effort to push Microsoft back on to its heels, successfully getting the tech giant kinda-sorta booted out of Deutschland (of course, it’s never quite so cut and dried). The company, recently acquired by Google, further strengthened their position when the ITC threatened Microsoft with major market restrictions and penalties in the US.

In the meantime, Microsoft successfully attacked Motorola’s flank, when the ITC ruled in its favor, on another licensing issue (another related article here).

Now that both camps hold trophies, they could either choose to continue attacking one another, if they believed more trophies were in the offing, or they could begin the next phase of a process all too familiar to large tech companies today: negotiation of a cross-licensing truce.

Instead of negotiating from the outset in good faith, companies today have discovered that negotiation under duress, even if that duress is mutual, tends to deliver greater savings. I’m not sure I believe it anymore, but the trend is to sue until the pot is sweet enough to settle.

As far as the Microsoft/Motorola Mobility clash is concerned, this could be a good time to trade trophies, and settle on a cross-licensing agreement that would allow both companies to get on with the business of selling their products to consumers (albeit at a slightly increased price point, necessary to cover their legal costs). However, now that Google has just purchased Motorola Mobility, the search-and-everything-else giant may opt to bloody its bitter rival a little more, and Motorola Mobility product sales may become collateral damage in the even larger battle between Redmond and Mountain View.

It would all be rather silly, were it not for the millions of dollars, hundreds of jobs, and possible legal precedents at stake…

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Twitter is in the midst of launching a complete redesign of its service, which will either – once and for all – clarify the purpose of this trend in our personal and business lives…or – once again – confuse most of us as to why everyone is so excitedly asking us to “follow” one another.

Follow @usdew

Despite my consistent use of the service, I grew frustrated with the Twittersphere nearly 3 years ago. Indeed, my very first tweet was a cynical jab at the concept: “To tweet to who? The owlish academic in me wants to understand the long term value in this app…so far not seeing it, but give me some time”…

My criticism waned a little as I developed a set of principles to follow, in the case of my own use. I would not tweet content, unless (with the exception of conversations) it was informative, inspiring, challenging, educational, enlightening, or empowering. I still remained ambivalent, though, due to the widespread practice of most Twits (I use the term in both its connotations) to ignore the content of Twitter feeds, and focus instead on the volume of their followers. In the absence of a clearly digestible value, Twitter has grown to become a points scoring mechanism, whereby users randomly follow as many account holders as possible, in the expectation that those strangers will immediately follow them back. If this convention is not slavishly honored, the initial outreach is unceremoniously rescinded, and the fishing expedition continues. As a result, it is not uncommon to see mundane twitter accounts followed by tens of thousands of other users, simply due to the fact that those users are returning the favor of an initial “follow”. Nobody bothers to read each other’s tweets, and nobody has any idea, in truth, what the final objective of this scavenger hunt may be, but the primitive desire to amass more than our neighbor continues.

The new Twitter incorporates some changes that might encourage the Twitterverse to grow up a little, and find a truly valuable purpose in the platform. There’s no denying that Twitter has been an extraordinary tool in geopolitical change making. The Arab Spring, Russian protests, and Occupy movements are testament to the fact that this cannot be laughed off as little more than a mindless time suck. However, the value of Twitter in our everyday lives is still in flux. Is it a news broadcasting channel? Is it an infosource? Is it a multidirectional conversational “egosystem”? Opinions and articles abound, but clear direction has remained conspicuously absent, until now.

The new Twitter, as it rolls out, proposes to move its user base more into the conversational ecosystem, in which only some have indulged, to date. Embedded Tweets will now become multifunctional media sparks, transportable and interactive as never before. The “#Discover” tab will encourage a degree of exploration and interaction heretofore ignored (or, if you’re feeling charitable, unseen). The “@Connect” tab, while still somewhat encouraging of self-absorbed grandstanding, will also open the door to less self-centered time-sensitive call-and-response interactions between accounts. Add to all this the new “Brand pages”, and you now have a brand positioning framework more akin to Google+ and Facebook…

Do you use Twitter? What do you like about it? What frustrates you still? Have you been switched over to the new UX, yet?

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Now that everyone who couldn’t bear to wait is feverishly pawing their new iPad (or not), I want to take a few moments to explore the possibility of alternatives.

I’ve admired Apple for the longest time, largely for its design and brand marketing savvy. The company’s innovative techniques have forced the hardware and software industries alike to eschew complacency, at the risk of alienating a very demanding consumer-base. However, I believe that the iPad, while it will certainly not damage Apple’s bottom line (Apple  apparently sold more iPad units on its opening day than it sold iPhone units back in June 2007, when that device was launched*), may well contribute to some overdue redress of the perception of the brand, versus the reality of its product line value.

There’s no denying that Apple has made some innovative products, and its oligarchy has ensured that attention to detail and robust design standards have remained mainstays in the development of all hardware and software offerings. However, the company’s commitment to closed systems, proprietary elements, and “walled garden” disdain for open standards has served to goad competitors into an increasing frenzy of responsive innovation. The result has been that the gap between Apple innovation and mainstream industrial emulation has narrowed sufficiently these past few years, so as to position several competing brands almost neck and neck with Apple on this, their latest release.

Blackberry, HTC, Motorola, Palm, and Google have all come out with multitouch interfaces for their handheld devices, in the wake of the iPhone. While few of these brands offer a truly competitive alternative to the Apple iPhone OS, with respect to UI and application experience, this gap may no longer exist with the Tablet. Here below are a few possible competitors to the early bird iPad:

WePad

Neofonie’s 11.6” display has much going for it, and is *apparently* going to hit the European market in less than a week. however, the absence of any video footage of note makes one pause…Here are some pictures, at least:

 

Lenovo IdeaPad U1

For those who can’t decide between a netbook and a tablet…there’s an app a device for that:

HP Slate

Competitively priced, and with some of the features that lots of people are moaning are lacking in the iPad:

Microsoft Courier

If Ballmer is able to deliver on the promise held within these demos, things could get really exciting:

Dell Mini 5

Multitasking, small form factor, data AND phone AND camera…:

Dell Mini 5 walk thru

ExoPC Slate

They call this a “finger driven PC”, and it certainly has some interesting specs:

ICD Tablets

Innovative Converged Devices has created a full size (called the VEGA), and a mini tablet (the ULTRA), depending on your carrier preference (the VEGA will be sold via T-Mobile, while the Ultra will go to Verizon). The full size gets my motor running more so than the mini, but the mini is certainly worth a look, if portability is one of your top priorities:

Notion Ink Adam

Saving the best for last, Notion Ink has managed to accomplish what I have been dreaming was possible: to marry the text reading superiority of the Kindle (e-ink), the user flexibility of the iPad, and the multitasking capability of some of the the other tablets mentioned above:

So where does this leave Netbooks? Given that companies like MSI, best known as netbook manufacturers, are set to launch their own tablet devices later this year, I predict that with the rise of tablets, we will see a relative decline in netbook sales. It won’t happen overnight, and devices such as Lenovo’s IdeaPad will certainly cater to those of us who want a little bit from both worlds, but as Android and other mobile OS technologies evolve, and multi-touch and resistive interface technology refine themselves, I think netbooks and laptops will be left with greatly reduced market share.

Yet, just when we think that there are enough worthy alternatives out there to permit ourselves the luxury of making a choice, along comes Google (again!) to suggest they may be releasing their own Chrome OS-based tablet

I guess it’s like car-shopping these days: if you need one, get one. If you don’t need one, wait a bit.  Everything seems to change dramatically on a weekly basis, so whatever you buy this week will be trumped in no time. The firm of Amdahl, Nielsen and Moore is hard at work…

Former equity analyst, domain name broker, and social networking early adopter Lou Kerner shares here his (and his co-author, Eli Halliwell’s) research in to the true market value of Facebook:

Current trading price in private market: $38      Target price:     $100

 

Overview:

  • Facebook is the most powerful website the world has known : With over 400 million reported users spending an average of 55 minutes per day on its site, Facebook is the most ubiquitous and transformative media company on the planet poised to create tremendous shareholder value as it begins to monetize its vast audience. Facebook already has ¾ the reach of Google and three times the average time spend per user, yielding Facebook double Google’s aggregate global time spent; and Facebook is on a dramatically steeper growth curve, growing its reach by 150%+ in 2009 vs. 40% growth for Google.
  • Facebook already drives more traffic to the leading portals than Google: While Google has long been the major driver of traffic to the majority of websites in the world, “friendcasting” on Facebook (when a friend uploads a link to content and someone clicks on it) is already a larger driver of traffic to sites like Yahoo and MSN than Google, according to Compete.com. If Facebook successfully leverages its new relationship with Microsoft’s Bing, implements more social search tools, grows its fan pages, and enables the continued natural growth of “friendcasting”, Facebook should surpass Google as the largest driver of traffic globally later this year.
  • Facebook is tracking to be a $100B company: Google has demonstrated how to monetize the time and data users give to the site daily. Facebook’s potential to monetize both time spent and data shared may be even greater than Google as it generates more time and significantly greater data on its users. Facebook also benefits from a network effect that doesn’t exist at Google. Each incremental user adds geometric value to the network. As Facebook achieves its goal of building the dominant global networked communications platform, it will begin to leverage its reach and earn its share of global advertising, ecommerce and payment revenues, possibly rivaling Google’s earnings potential. We estimate that Facebook will be worth more than $100 billion by 2015 using the same multiples on Facebook’s forecast 2015 EBITDA as Google is valued at today. More aggressive (but still reasonable) multiples and growth rates would yield values rivaling Google’s market cap of $140+ billion, ex cash.
  • Facebook is worth $50B today: If Facebook is worth $100 billion in 2015, discounting that valuation back to today with a 15% discount rate, gives the company a current value of ~$50 billion. Regardless of the discount rate you use, Facebook offers a very compelling investment opportunity at current prices.
  • Facebook is privately traded at 60%+ discount to its current value: Most investors don’t know you can buy Facebook shares today, pre-IPO. While the market for Facebook shares is not robust, there were millions of shares traded last year through private marketplace websites like Second Market.com, SharePost.com and others. Only accredited investors are allowed to participate. Currently, ask prices are about $38/share, implying a market cap for Facebook of ~$19 billion. Relative to the $50 billion fair market value we see in the company, this represents a 60%+ liquidity discount.
  • Facebook only has to earn $7 per user in EBITDA to justify our valuation: Dividing our $50B target by Google’s current trading multiple of 18X EBITDA implies that Facebook currently has earnings power of $2.8B in EBITDA. Dividing the $2.8B by the current base of 400 million users implies $7 of EBITDA per Facebook user. Facebook will have far more than 400 million users in 2015, so this is a conservative estimate. Even at $7/user, our projection is that Facebook would earn significantly less per user than other major internet companies. Amazon earns $15/user; Google earns $20/user; and eBay earns $34/user. While each of these companies operates with different business models, they all rely on aggregating huge volumes of users to create value for their investors. Facebook will earn ad revenue like Google, commissions on transactions like Amazon and eBay, and fees on payment processing like eBay. In presenting this metric we are demonstrating that even if Facebook’s earnings power is significantly less per user than other major internet players, it would still command a $100B market cap.

Quick Facts (according to Facebook , Alexa.com and Compete.com):

  • #2 website globally in total page views behind Google; should pass Google in first half of 2010.
  • At 30%, Facebook has the same global reach that Google had 1 year ago.
  • Both Google and Facebook should have global reach of ~50% by end of 2010.
  • 2 years ago Facebook’s global reach was just 6%.
  • Internet users spend 3x as much time on a Facebook page as they spend on a Google page.
  • Over 700mm pieces of content are uploaded on Facebook daily (eg. 100mm photos daily).
  • Average user spends 55 minutes/day (~23% of total time online) on Facebook, 50% of users log on daily.
  • 67% of US online users are on Facebook.
  • ~70% of Facebook users live outside the US.
  • Among top 36 countries: Facebook’s page view rank is #1 in 4 countries; #2 in 23 countries; #3 in 9 countries.
  • Facebook just received approval for patenting its news feed, the core functionality of its website.

Investment Thesis:

Facebook is already the world’s dominant website

  • However you measure it, Facebook’s global scale and growth are astounding. Of its reported 400+ million users, ~120 million are in the US.That’s 120 million out of ~180 million US internet users (according to Commscore); indicating that about two-thirds of all US internet users are now on Facebook. Facebook says the average user is on Facebook 55 minutes per day, out of a total average of four hours per day of total internet usage by the average US internet user. Those statistics are consistent with recent research based on Compete.com statistics indicating that Facebook now accounts for 25% of total US internet page views and 15% of page views in the UK. As a result of its dramatic surge in uniques and page views, Facebook is now directing more traffic to major portals like Yahoo and MSN than Google through “friendcasting” – the name given to the process of clicking on a link your friends post in their Facebook newsfeed.In this report we want to discuss two implications of Facebook’s dramatic growth.

Facebook has blown by MySpace in social networking and is poised to pass Google in 2010 in directed traffic

  • The world of television presented us with about 10 channels in the 70’s, which grew to 500 channels as digital proliferated in the late 90’s. The internet now brings us hundreds of millions of channels (i.e. websites, Facebook profile pages, blogs, etc.), which we have only been able to navigate with search. Yahoo dominated search in the early days, but they were passed by Google when Google came up with a better algorithm presented in a simpler design. Because they are the dominant search engine, Google emerged in the early part of the last decade as the dominant source of traffic for most sites.
  • MySpace was the early dominant “social network”, but the users weren’t really networked. We had to surf MySpace or hope someone came to our MySpace page to get any real value, and significant technical improvements were glacial.
  • Facebook’s improvements were simple but monumental. They used basic newsfeed technology to enable us to know what our friends are doing, thinking, buying, playing, or posting, simply by going to our own newsfeed.They also opened up their platform to third party developers, who quickly provided the Facebook community with a wide array of incredibly popular applications like Farmville, which has over 80 million players. In fact, Facebook states that there are more then 250 applications that have more then 1 million active users. While many of us used to go to Google to find the latest news, or would surf major or minor news sites to see what was going on in our world, our news and information is increasingly brought to us by friends who post news of interest to them or about them, which appears in our newsfeed. Friendcasting on Facebook will be complimented by Facebook’s increasingly deep integration of Bing’s search tools on Facebook, as well as by other social search applications on Facebook that let us mine the behavior and opinions of our friends. We believe Facebook will pass Google in terms of traffic generation to other websites in 2010.
  • Because we tell Facebook so much about ourselves, and because we spend so much time on Facebook, Facebook knows dramatically more about us than any other website in history, and Facebook’s willingness to share this data makes them an incredibly attractive partner to websites who like user data (which is almost every website). The question now is: how will Facebook leverage its powerful position to generate revenue and profits for their shareholders?

Facebook will be worth over $100 billion

  • Facebook will generate revenue from advertising, both display ads and through increasingly integrated search tools. Microsoft’s Bing, as the search provider on Facebook worldwide, compliments Facebook’s powerful “friendcasting”. Rather than merely offering links, the Bing integration will present more of the features available on the search engine itself. For display advertising, Facebook will increasingly be presenting ad formats that feature social actions. Social integrated ads perform better and provide a better user experience since they are consistent with the context and feel of Facebook. Facebook ads will also be increasingly targeted to people based on the information they provide Facebook. This combination of targeting and social relevance will drive enhanced performance and rates for Facebook display ads.
  • Global internet advertising is poised to grow to $96 billion in 2015 (according to Magna), a 10.5% five year CAGR. Traditionally in media, companies with scale are able to grab outsize share of ad spend. Therefore, as Facebook has the most global scale, its safe to assume that Facebook will attract its fair share of the market. While Facebook is still growing rapidly, we assume in our valuation thesis that they account for only 15% of total internet traffic in 2015. According to Drake Direct, based on Compete.com data, Facebook is already at 15% in the UK, and they are at ~25% in the US. We believe 15% is a conservative view of Facebook’s page view and time spend share in 2015, given its current trajectory. We estimate that Facebook’s 15% share of the global internet audience yields them a 15% share of the global internet advertising market, yielding a forecast of $14.5 billion in advertising revenue in 2015. Today this may seem like an aggressive assumption based on the fact that Facebook currently does not command a comparable CPM to many other websites for their display ads. But Facebook has just really begun to monetize their traffic and weave in targeting and social relevance, and they haven’t even begun monetizing social search. Where Google offers advertisers strong targeting for purchase intent, Facebook is the holy grail of targeted brand advertising, and is posed to make significant headway in search.
  • Facebook Connect is another powerful platform for Facebook to leverage and eventually monetize its user data. Facebook Connect is quickly becoming a de facto registration platform on the net. Currently, over 80,000 sites have already implemented Facebook Connect, including many large sites like CNN. Facebook Connect is emerging as the internet “passport” that enables people to enter any website, as well as interact with their friends who are also on that website. This will likely become another significant revenue platform, as Facebook could potentially harness Facebook Connect to create a leading ad network, leveraging their deep relationships with advertisers and their mountains of user data. For purposes of this analysis, we’ll assume they derive zero revenue from Facebook Connect in 2015. Therefore, in our analysis, investors are getting a free call on this massive business opportunity.
  • Next up, and just as interesting, is Facebook’s recently introduced payment system. Initial testing on Facebook indicates Facebook consumers prefer Facebook’s system to the other payment systems available on Facebook.Facebook is charging a whopping 30% fee to the publishers selling virtual goods (similar to Apple’s 30% take on applications sold on its iPhone platform). The system includes many other benefits for publishers (e.g. preferred placement in the gaming directory, better advertising rates) that only Facebook can provide. Analysts estimate that Facebook’s payment system will grab more then 50% share of payments on Facebook and generate $200 million this year based on projected sales well north of $1 billion in virtual goods in 2010. But payments on Facebook will be just the beginning for the payment system. Facebook Payments is well positioned to take meaningful share from PayPal all over the internet as users will increasingly be using Facebook Connect on ecommerce sites around the net. Paypal is expected to generate $3.3 billion in revenue on a base of 88mm active accounts in 2010. We believe Facebook Payments could grow to a $2 billion dollar business by 2015.
  • Given the simple analysis above, we project Facebook will drive $16.5 billion in revenue in 2015. While this is a big number, it is just over 1/3 of what Google would be projected to generate in 2015 if Google grew revenue at a 12% CAGR (about ½ it’s recent revenue CAGR of 20%). For ease, we assume Facebook achieves the same 35% EBITDA margin as Google is currently experiencing. Let’s similarly assume that Facebook, as a public company, would be valued using the same EBITDA multiple as Google is valued at today, which is 18X 2009 EBITDA. The math above implies a value of $103 billion based on 2015 projections.

Facebook is worth $50 billion today

  • If we discount $103 billion back by 15% per year, we get a price target of $51 billion today. This implies a value that is more than two-and-a-half times the $19 billion value Facebook shares are currently trading at on secondary private marketplaces. The table below looks at how our valuation would vary depending on various multiples and discount rates. Even at a 21% discount rate, Facebook would be worth more than 2x the current share price.

 

  • Another way to value Facebook helps put our target in to perspective. Based on current membership levels, we are valuing Facebook at $125 a member.If Facebook were valued on an 18X multiple of EBITDA today, that implies that Facebook has the power to generate $7 in EBITDA on average off its members, or $20 on average per member in revenue (assuming 35% margins). Neither number appears a stretch. Amazon earns $15/user in EBITDA, Google currently earns $20/user, and EBAY earns $34/user. We recognize these companies all have different business models, but we think it is helpful to put some context around our $7 EBITDA per Facebook user projection.
  • Is a 15% discount rate too low given that we’ve seen other social networks appear and then fade, most recently MySpace? We’ve seen other internet leaders founder – is Facebook like Yahoo? Is it possible Facebook is just a fad, as some argue? Our thesis is that Facebook is already deeply ingrained in our daily lives, and this is just the beginning. There are many reasons why the switching costs are significant, and Facebook keeps adding new ones – most recently Facebook was granted a patent on “the feed”, a core feature of Facebook’s functionality. Facebook is averaging over 100 million photos uploaded per day. People don’t like to leave those behind. With an average of 130 friends per user, almost everyone has many connections that only exist on Facebook. The average person is a member of 13 groups. As we increasingly move to mobile, we are bringing Facebook with us. The Facebook iPhone app has been downloaded by over 28 million people. In addition, every wireless operator is advertising the availability of Facebook apps on their phones.
  • Maybe our estimates are too conservative? 15% share of online ad revenue and 35% operating margins could prove too low. The data table below shows that each 1 percentage point of share of the online ad market for Facebook is worth $3 billion present value at a 35% margin. With 30% reach of global internet usage today, it is conceivable that Facebook ad share could be well over 15%.

Facebook shares are available for accredited investors to buy and sell, and the current value is $19 billion

  • There is a secondary private market for Facebook shares on sites like Sharepost.com and SecondMarket.com that make markets in shares of dozens of private firms, enabling employees to monetize some of their options.
  • After proving you’re an accredited investor, the transaction is papered, with the seller paying transaction costs.
  • While Facebook enables employees to sell their shares, the buyers of these common shares are prohibited from subsequently trading their shares until Facebook goes public or is acquired.
  • Right now, shares are being offered at $36-$38 per share, implying a market cap of $19 billion.

Catalysts:

  • With only $600 million in rumored revenue in 2009, Facebook has done little to monetize its vast reach. As Facebook revenue generating initiatives start to scale, private market values should increase.
  • When the company goes public, the liquidity discount will evaporate and prices will rise to fair value.

Risks:

  • Shares bought in the secondary private market are not liquid and do not entitle the owner to the information usually provided by public companies to their investors.
  • Another competitor could arise and take market share from Facebook. In fact, to the degree that Facebook attracts 15%+ of all internet time, every other website on average is generating 15% less traffic. So it’s easy to imagine other sites working together to try and thwart Facebook. But like Google, other websites will increasingly see Facebook as a “frenemy”, a strong competitor for the mindshare of internet users but also a driver of massive traffic.
  • Facebook either may not be capable of or may not be concerned with generating massive revenue or going public. This is unlikely since history has shown that once eyeballs are assembled, advertising and other monetization opportunities present themselves. Some people thought no one would advertise on MySpace, and they were proven wrong. And Facebook is far more advertising friendly than MySpace as pages are much less free form. While a few companies (most notably CraigsList) appear uninterested in maximizing revenue, Facebook’s significant VC investors will help drive both monetization and an eventual liquidity event. In addition, like Google, Facebook will need to generate cash to help finance its increasing spend on R&D to drive innovation.
  • Privacy remains a significant concern of internet users globally, and with all the data Facebook aggregates and make available, they are walking a fine line. Facebook has clearly had some missteps in the past, most notably its Beacon information sharing product in 2007 that caused an outcry from privacy groups. They have also had technical glitches, one as recent as last week where messages were misrouted. As a result of these lapses, Facebook is acutely aware of the privacy issue and they appear to be thoughtful in their approach. Google also struggles with privacy, as evidenced by their recent bungling of the introduction of Google Buzz.
  • Given Facebook’s increasing stranglehold on internet usage, governments in the U.S. and elsewhere could step in and, in some way, break up the near natural monopoly on social networking that Facebook will have.

Lou Kerner currently runs a portfolio of parked domain names and is COO of Gamers Media, an ad network for online casual gaming sites. Lou has a BA in Economics from UCLA and an MBA from Stanford University. This article is reprinted from a research report published yesterday on the research site track.com, a subscription site featuring the work of ex-Wall Street analysts.  Mr. Kerner’s personal website can be found at http://loukerner.tumblr.com/.

Web Marketing strategist Elyssa Pallai shares her “Top 4” projections here for web marketing in 2010:

The days of SEO as the primary traffic driver to your website are over. Don’t get us wrong, organic search engine optimization isn’t about to disappear as a key traffic driver. And thankfully, Google AdWords is still going strong. However, recent technology trends enable a brave new world of marketing. Ignore them at your peril.

Take real-time, for instance. The next generation of search, aggregation, notification and findability services are being developed using real-time technologies that enable users and machines to receive real-time updates. In a recent post, Robert Scoble said he would be better off curating news than actually attending the Apple launch! What? If you aren’t thinking about how real time, along with social networks, mobile and location-based services fits in your marketing plan, you’re missing an opportunity.

Google’s Great, But Facebook Rocks

In a recent post, ReadWriteWeb’s Marshall Kirkpatrick asked “Why is Google afraid of Facebook?” The answer is because social networking sites have become a key link in the search and information sharing value chain. You would have to be hiding out in a dark hole not to understand social media and the effect it has had on marketing the past couple of years – but surpass search? Oh, right, now I get it: These sites are an important information source for everyone. Importantly, friends’ recommendations are key.

Mobile is Better

Google’s VP of product development recently stated that, “with all the capabilities these phones that are coming out have – like GPS, cameras – we think there is the potential to actually make this mobile Web better than the PC Web.” That is a profound statement for marketing managers. A mobile phone experience better than the web? If you haven’t bought yourself a smart phone like iPhone or Android, we suggest you go out and grab one. Mobile applications are proliferating like rabbits. What would be better than to be first to market and offer your customers an exceptional product experience while on the go.

Perfect product placement

Location-based services mean the ability to market right outside your front door is happening now. Frederic Lardinois reported in June 2009 that 1 in 3 smart phone owners use location based services. Take this simple example. You’re in Vail, you just finished 8 hours on the mountain and now you’re looking for the perfect apres ski location. You’re walking down the Mall, you take your iPhone out of your pocket and ta-da! Buy one-get-one-free margaritas at Las Margaritas. You’re standing right outside. Perfect product placement. And now you can talk about the restaurant and broadcast it immediately to all your friends.

If you aren’t listening to the conversation, you better start. There are numerous listening applications available to get you started in your pursuit to join the conversation and get a handle on positive as well as negative feedback on your product or brand. A simple saved search in Twitter can go along way.

All these trends have a profound impact on how we market to our website guests at ReadWriteWeb. Not only do we have to understand search engine optimization, but the opportunities offered by social media marketing, the new capabilities and possibilities offered by mobile, geolocation, augmented reality and real-time notification and information sharing. One seems to becoming just as important as the next.

If you don’t understand these technology trends as a marketer, you better get out while the getting is good. Enabled by technology, 2010 is already a watershed year for new ways to reach your customers.

Elyssa Pallai is the Marketing and Experience Manager at ReadWriteWeb. Elyssa has been working on the web since 1997 in the USA, UK and New Zealand.