Facebook has announced that it will borrow $100 million to purchase new servers. This report suggests they are scaling up from 10,000 servers to about 60,000. Assuming Facebook Connect is widely adopted (and it probably will be) it does make sense that the server loads may go up dramatically.
So why did they borrow that money rather than just sell more stock? Silicon Alley Insider suggests, I think correctly, that it is because nobody is foolish enough to value Facebook at the whopping $15 billion that earlier deals were *rumored* to have been based upon. In fact Henry Blodget suggests that the Hong Kong deal did *not* value the company at 15 billion. I've noted before that Microsoft was probably not all that concerned about the monster theoretical valuation they gave to Facebook with the $240,000,000 investment - rather they were after foothold and ongoing advertising and partnership agreements.
So, with Facebook poised to lose a lot of money in the coming months to years, what will be their ultimate future? Without some huge breakthrough in their pitiful social networking advertising yields, the answer may not be all that Facebook friendly.
Facebook Connect is the next iteration of Facebook Platform that allows users to "connect" their Facebook identity, friends and privacy to any site. This will now enable third party websites to implement and offer even more features of Facebook Platform off of Facebook – similar to features available to third party applications today on Facebook.
Facebook lists Trusted authentication, Real identity, Friends Access, and Dynamic Privacy as key features of the new platform. Here are more details at the developer blog.
Although open is very much the key paradigm it is also clear that major social players Myspace and Facebook are working hard to figure out how to make "their" open application "the" open application.
Kara at Boomtown is reporting that web visionary Marc Andreessen, who brought us Netscape and Ning, is likely to become the 4th board member of Facebook.
This is particularly interesting because Ning is a major player in the Open Social Alliance spearheaded by Google, an alliance that includes Myspace but not Facebook. Is Facebook seeking to bridge that gap in the social networking space? Certainly Facebook's power plays in the executive and board areas suggest that the social juggernaut has even bigger plans.
With the Microsoft Yahoo merger on the skids, many have suggested that Facebook may be a key new aquisition target for Microsoft.
Below is the memo Mark Zuckerberg’s sent to all Facebook employees announcing the hiring of Elliot Schrage as the company's new VP Communications and Public Policy.
Hey Everyone–
I’m writing from India to share with you the good news that Elliot Schrage will be joining our management team as VP Communications and Public Policy. In this role, he will be responsible for developing the key messages we want people to understand about our products, our business and the growing global importance of social networking and what we do. The goal here is to help people understand how the internet can strengthen people’s relationships. Elliot will direct our efforts to work with users, media, governments and other entities around the world to ensure that Facebook’s policies are transparent, responsive, effective and are recognized as being those things.
Elliot is joining us from Google where he has been their VP Global Communications and Public Affairs since 2005. At Google, he broadened the company’s messaging from a focus on only product PR to include all aspects of corporate, financial, policy, philanthropic and internal communications. Before that, he served as a Senior Fellow at the Council on Foreign Relations, a public policy think tank, as a professor at Columbia Business School and as SVP at Gap. Early on, he began his career as a Harvard-trained lawyer.
This is a really important role for us and one that we’ve been trying to find the right person for a while. Elliot’s role will be critical to helping us scale based on our culture that values transparency, openness, and honest internal communications.
Elliot will be starting on ***, although you may see him around the office before then. If you want to send him a note to congratulate him on joining, his email is *** and I’m sure he’d love to hear from you.
Google's PR Chief Elliot Schrage left the company to take the same position at Facebook. Schrage will be Facebook's VP Communications and Public Policy, reporting to Sheryl Sandberg who herself left Google to become the COO at Facebook. Schrage was famous for putting the best spin on several "Don't Be Evil" protests at the company's Mountain View campus and elsewhere.
Although one should maintain a healthy skepticism of the values given to many of the companies listed in Adnomics extensive review of Facebook applications, the site offers great insight into the Facebook development landscape as it shows how many users and how many installs for thousands of applications.
Top of the pile is Slide.com, the most successful widget builder for Facebook that started as a photo application with enormous exposure across Facebook. Slide has already enjoyed investment of about $75 million and a spectacular market valuation of over half a billion dollars, actually far more than the $322 million valuation given to them by Adnomics which appears based more on metrics than market forces.
Morgan Stanley has made available their Internet Trends report for 2008. The 72 page report covers: 1) Usage Patterns 2) Social Networking 3) Widgetization 4) Measureability 5) Monetization 6) Facebook Apps 7) Online Ad Spend 8) Online Video 9) Mobile Outlook 10) Emerging Trends 11) Recession Impact
Inside Facebook has pulled together an excellent post noting the claimed CPMs by several Facebook developers for their Facebook Applications.
Here are the numbers:
$0.60 CPM with Social Media
$1.50 CPM with VideoEgg
$0.27 CPM with Cubics, down from $0.43 earlier this month
$0.40 CPM with Cubics
$4.78 eCPM with Social Media [? This is so out of line with the others I think great skepticism is called for here]
$0.50 CPM each with AdSense, FB Exchange, Social Media, and RockYou (and by combining 2 units on a page is making $1.00 CPM)
$0.125 CPM with Lookery ($0.25 with 2 ads above the fold)
$0.10 CPM with Cubics, down from $0.43
$0.04 CPM with AdSense
Note especially that last very sad Adsense CPM of $0.04 That's four cents per *thousand* impressions, hardly something you'd want to write home to your angel funders about. Clearly few if anybody has found the recipe for great monetization of the social networking experience - that is unless you count the amazing ability of companies like Facebook and Ning to garner investment capital based on huge company valuations.
Another issue that is not yet well resolved is the simply enormous discrepancy between these sad CPMs and those that are charged to many advertisers. It's still common to see advertising rates of $30 CPM and even more for highly targeted websites. Clearly advertisers see a lot more value in targeting than simple numbers, and based on the limited data to date it does appear that social network advertising is conspicuously inferior to other forms of ads.
Yet are the targeted website CPMs of over 500 times what most of these Facebook developers are seeing sustainable for the long term?
As social applications like Facebook, Myspace, Ning, and dozens of others attain sky high valuations few are focusing much attention on how poorly most of these social networking sites monetize their enormous traffic levels.
Microsoft's Emerging Business guru Don Dodge, in an excellent post about Social Networking, notes an example where a Facebook application only manages to generate $6,000 to $15,000 per month revenue with page views of .... wait for it .... three hundred million per month. This disparity is so great I'm wondering a bit about his source for those numbers, but it is certainly clear that social media monetization is no walk in the PPC park.
Google's dominance in the very lucrative search pay per click market has made Google the global online advertising leader in terms of advertising traffic and advertising revenue. Despite this success, even Google has been failing to find another holy grail. YouTube may eventually justify its huge valuation in indirect ways, but it does not appear to be a very healthy way to capture revenue for Google or for affiliated video publishers.
Likewise Facebook's key advertising revenue has come somewhat indirectly - from a guaranteed advertising deal with Microsoft rather than from clever internal advertising schemes like Beacon, which practically blew up in Facebooks ... own Face when issues were raised over privacy and potential misuses of Facebook user account information.
People, and certainly the advertising market, are still adapting to social networking so it is too early to know if social networking will prove to be as fertile a ground for advertisers as search. What is clear is that not much revenue is growing there yet.
Facebook is close to settling the lawsuit filed by Facebook's original founders Divya Narendra, Tyler and Cameron Winklevoss reports the NYTimes.
The three founders accused Mark Zuckerberg of stealing their profitable idea back in 2003, when they were all Harvard students. The three founder organized under the name "ConnectU" had hired Mr. Zuckerberg, then a sophomore at Harvard, in 2003 to help create a campus-wide dating site called Harvard Connection. The idea was to create an online version of offline facebooks' incorporating images and profiles of students. They said Zuckerberg stalled on the project for months while working on his own idea and ultimately starting TheFacebook.com.
The lawsuit cast doubts on Mr. Zuckerberg’s ingenuity and brought out embarrassing details about his past such as his Harvard application and diary. Mr. Zuckerberg moved to Palo Alto, CA and was able to sell the concept as a MySpace alternative to venture capitalists and ultimately convince Microsoft to invest $240 million at a $15 billion valuation. Recently the company has hired some high profile people such as Sheryl Sandberg former VP of Online Sales at Google to be its new COO.
Facebook had filed a countersuit, accusing ConnectU of unfair business practices. However, the case seems to have been dropped or terminated. Terms of the settlement were not disclosed.
While US social networks are waiting on advertisers to shifting their ad spending their way.Tencent, a Chinese internet portal which operates QQ.com is not banking on advertising. The company reported revenues of $523 million and an operating profit of $224 million. About 60% of the revenue came from services like games, virtual currency called QQ coin (which is fake currency paid for with real money), an additional 21% came from mobile services like ringtones and only 13% came from online advertising. QQ.com is reported to have over 300 million active accounts. Yes you heard that right. That is 8 times the size of Facebook or the same size as the US population.
Facebook on the other hand posted revenues of $150 million in revenue for 2007. The company has raised over $400 million and there is growing nervousness over its valuation and its ability to monetize its user base. Bebo, which was purchased by AOL for $850 million had revenues of just $5 million. MySpace purchased by News Corp. for $560 million is projected to haul in $1 billion this year.
A judge in the UK has "settled" what many of us have wondered for some time - are Facebook friends real friends, even though you often don't really know the person?
No, said the judge in a case where a woman argued that she was being harrassed by her ex-boyfriend's friend requests on Facebook.
The Syndey Morning Herald noted:
... the magistrate accepted his argument that the contact was highly innocuous because being "Facebook friends" could not be defined as "friendship in the traditional sense".
The best Facebook advice I had was from Robert Scoble who suggested to me some time ago that a friend on a social networking site was whatever you wanted them to be. I loosened up my approval and invite process thanks to that invite and it has led to some excellent contacts I might not have made if I'd waited to actually meet all those "Friends" at a conference.
A new social networking alliance will include internet powerhouses Google, Yahoo, and Myspace in an "Open Social Foundation". Facebook's absence from this list is something of a social networking elephant in the room as Facebook is generally considered the key innovator and eventual market leader in the social networking space.
The Open Social Foundation will, according to the Yahoo Press release today, work to ensure:
... the neutrality and longevity of OpenSocial as an open, community-governed specification for building social applications across the web...
The foundation will provide transparency and operational guidelines around technology, documentation, intellectual property, and other issues related to the evolution of the OpenSocial platform, while also ensuring all stakeholders share influence over its future direction.
In short, Open Social is working towards a social networking environment that spans the internet, sharing information across platforms and websites rather than confining social networking information to a specific standard or a particular online environment.
Facebook has also created tools for the integration of information with other sites and routines, but generally Facebook is considered to be a less open online environment than the type envisioned by Open Social advocates. With Facebook the user tends to socially interact within Facebook itself, where with Open Social you will be able to access social networking functions from any sites that have adopted the Open Social platform.
In Meanwhile, Back at the Plantation Nick Carr raises questions about the importance of who owns what in a social network. He looks at the recent sale of Bebo - the world's third largest social network after Facebook and Myspace - to Time Warner. Carr notes that the founders in that case did not claim ownership of their participants content:
Birch, to his credit, did not claim ownership rights to the music and other creative work uploaded to his site. But neither did he offer any royalties or other financial benefits to the musicians whose work, as Bragg writes, played such an important role in "draw[ing] members and advertising — to his business."
Although it is easy to react to these big social media sales as an act of digital exploitation, where a handful of key players reap the rewards of millions of individual contributors, it is also important to note the many nuanced aspects of these deals. The big players have created for many a sort of "digital playground" and that has a value both for the content producers and the content consumers. Many businesses reap advantages as well, as when a band uses social media rather than advertising to spread the word. No network would dare to claim any ownership from song royalties even if it was that network that launched the career.
Perhaps most important, however, is the fact that even if you could find a formula for distributing network advertising proceeds according to content production the checks to the content folks would be in most cases so tiny as to be almost insignificant.
For example in 2007 Facebook's revenues were about $150 million. Thus Facebook's 100 million participants generate, on average, less than $1.50 in revenue *per year*.
Facebook CEO Zuckerberg says he expects to double that to 300 million in 2008, but most think that estimate is unrealistic and even if true the average per user would be well under $3 per year given the increase in subscribers we can expect over that time.
So, as one of the information slaves at Facebook I am contributing to the site in a way that allows them to make $1.50 per year monetizing my participation, and maybe just under a penny per day next year if all goes very well for them.
I certainly get more value than that from Facebook, and thus it appears I have only a weak claim to ask for them to cut me a monthly check for the $0.12 in advertising revenues I helped to generate. Mark Z - I guess it will be OK if you send me that ... quarterly.
Facebook and Myspace each have approximately the same number of users according to data provided by Comscore and parsed by Silicon Valley Insider.
There has been a surge of growth from the public deployment of Facebook when it opened the service to everyone. Other Facebook developments have defined it as the innovative leader in the social networking space.
Here at Mashup Camp Chris Schalk from Google just wrapped up an excellent presentation about Open Social - the open source social networking environment spearheaded by Google along with partners like Myspace, Ning, Plaxo, and hundreds more.
Shindig, the ¨container" for social applications, appears to be ready for outtside development now. The lack of a container was a concern at the initial launch of Open Social.
One can make a strong case that Open Social and the Open Handset Alliance are the most significant open source projects now under broad deployment, both because they are backed by Google dollars and ingenuity as well as a legion of potential partnerships, and because they are helping with the mass migration of data, services, and people to open architectures where users are the key players in the online equation rather than the website creators or service providers.
Facebook does not currently support Open Social and remains something of a wildcard because Facebook is often a key component of good social media strategy. However developers can easily deploy both for Open Social and for Facebook and thus cover most of the bases.
TechCrunch is reporting tonight that an IM application is coming to Facebook and launching to the public soon - perhaps in the coming week. TechCrunch's report.
A Facebook IM will almost certainly kill off third party Facebook applications that deliver IM services, showing one of the perils of startups that "build for Facebook" or any other major player in the online space who might decide to deploy a similar application and pull the rug out from under the unlucky startup at any moment.
More importantly will be the impact of Facebook IM on other major messenger services such as those provided by Microsoft and AOL, and perhaps even microblogging tech favorite Twitter.
Heavy users are clearly tiring of using dozens of applications to communicate with friends and associates. The surging popularity of new social media aggregator Friendfeed is a testament to how hungry early adopters are for applications that can simplify the process of publishing and communicating to the broader web, though Facebook's new IM entry is unlikely to shake things up all that much given the increasing demand for more robust forms of communication than that offered by IM.
Today's big news is AOL's acquisition of Social Network Bebo for a cool $850 million. Kara Swisher has an excellent piece detailing some of the financial aspects of this mega-deal. She also notes that despite some significant success in the space, Bebo is very much in the shadow of Myspace and Facebook as a social network.
With only $5 million in EBITA for 2007, Bebo is selling at a whopping 160+ times earnings. Big companies tend to do be viewed more favorably than small ones by this EBITA multiple metric, but it is notable that with small and moderate sized website dealings one would expect to pay only about one or two times annual earnings rather than paying in the tens or in this case over one hundred times annual earnings.
This discrepancy is in part due to the fact that large sites are arguably more stable than small ones, but in my opinion this is still a very conspicuous aspect of wheeling and dealing with online companies, and arguably yet another indication that internet bubble two may be ... growing ever larger.
One has to be middle aged to remember when AOL was pretty much the *only* big game in town in terms of online socializing, and I'm sure AOL execs are wishing they had managed to turn more of that early chat room activity and idle banter into a thriving social network like Myspace or Facebook or Bebo.
Can Bebo help AOL regain the former glory it enjoyed in the early days of online activity?
Compete.com has published their ranking of Top 20 Social Networks for February 2008. The fastest growing social network was Fubar - an online bar and happy hour. The author reports that year- over-year growth rates seem to indicate that social networking (as an industry) has yet to peak. The table below shows sites ranked by monthly visits. This ranking factors in both total audience size, and also intensity of use.
Myspace was down slightly from February 2007 in terms of total US visits. However, the networking giant still holds a commanding traffic lead over all other Social sites.
Facebook visits fell slightly from January 2008 to February 2008, but over the year the site has grown by over 75%. In terms of US visitors, it is now about one half the size of Myspace, but receives about 1/3rd as many visits.
Niche markets are still attractive in terms of Social networking: Cafemom (a social network geared towards mothers), Linkedin (a networking site for professionals) and Fubar (“the first online bar”) all grew by 5X or more from February 2007 through February 2008. Fubar, in fact, exploded into the top 20 networks from relative obscurity one year ago.
Innovative business models also had success in 2007: Communication platform Twitter, and white label social network Ning, both found a dramatically larger audience in the past year.
Allfacebook.com's Nick O'Neil is a key observer of the Facebook landscape via his very popular, though unofficial, Facebook blog. In Nick's report from SXSW, the very popular media conference in Texas, he is suggesting the Zuckerberg keynote/interview was a "disaster" and blames Sarah Lacey for failing to ask many questions.
Apparently the SXSW audience was not pleased as well. There are reports of booing from the crowd - a pretty unusual response to a keynote speaker or interviewer.
I'll post a link to the interview which should be online soon.
Sheryl Sandberg is leaving her position as Google's Vice President of Global Online Sales to become the new chief operating officer at Facebook. Sheryl is replacing Owen Van Netta who is leaving to pursue other opportunities. She will begin her new job on March 24.
Chairman Gates deleted his Facebook account after getting thousands of mortgage refinance requests due to the sub prime crisis and thousands more friend requests from non friends.
However, when other Facebook users tried to follow suit they had a difficult time so much so that Nipon Das, a Manhattan business consultant went so far as to threaten legal action in order to quit Facebook.
"Facebook has made it extremely difficult to delete accounts", said several users. After receiving confirmation by e-mail of the deletion from Facebook's technical support team user were surprised to learn their accounts were still active.
Katie Geminder, Facebook's director for user experience and design said, "None of their information was exposed, but the empty account continued to exist even though all of its data had been removed," she said by e-mail. The bug was fixed within 24 hours, she said.
One such partially deleted user was Matt Dauphin, a 22-year-old office manager for an interior design firm in Tempe, Ariz., who tried to delete his account. He received confirmation by e-mail of the deletion from Facebook's technical support team.
But even after he received that confirmation, a working link to his empty Facebook profile was the first result in a Google search for his name. While his name, photo, and profile information had been deleted from the Facebook page, his friends who still used the service could see his lists of friends and the external applications he had added to his profile. More>>
Microsoft Chairman and Founder Bill Gates has stopped using Facebook and has delete his account after being hassled by thousands of fans. The Chairman was inundated by over 8,000 friend requested a day and thousands of loan refinance requests fueled by the mortgage meltdown.
Chairman Gates became so hooked on the site that he decided to invested $240 million regardless of valuation just to own a piece of it. He spent about 30 minutes a day chatting with friends and searching the site (ah that's where he got the idea to buy a search engine - more about this in another post).
A Microsoft spokesperson said that Chairman Gates hasn’t deleted his account, but that he has stopped using it because he was inundated with friend requests. However, another Microsoft spokesperson said later that sadly Chairman Gates has had to close this account.
Last August David started developing an open source service that would crawl online relationship data and expose it via an API. He showed snippets of it on his blog (pictures and text), and also gave a brief demo at the Data Sharing Summit. He goes on to say, "We even came close to releasing an online tool which visualized all of your accounts and friends; instead we opted for demonstrating its power with a screencast showing how you could use it to find your friends. While this implementation of the API was based on publicly discoverable information (like Google’s), we simply didn’t feel comfortable shipping that project based on current implementations. More>>
After the let down of Google's Opensocial attempt, Google has now launched Social Graph API, which aims to be a centralized place which web services can use to access relationships between people. So, how does it work? FOAF and XFN are used to provide information about relationships between people in hyperlinks. For instance, an example of XFN hyperlink would be "<a href="http://jeff.example.org" rel="friend met">" which says that Jeff is my friend. Google's crawler which already indexes links for its search engine, will now also build a social graph. This social graph is then exposed in the form of an API which will be accessible by any third party. And how does Google create a social graph from links? If me and a friend are following each other on Twitter, then it will consider us friends. So, if I visit any third party site and specify that I represent the following twitter account, then that third party site can query the API to tell me that my friend is also using this service presently. Another way is the use of affiliation; that is, I mention my Facebook profile on my blog and Twitter account on my Facebook, then Google's Algorithm will know that all three pages belong to a person named Mayank. Using this (maybe) public information, my public profile is made along with my connections which any third party can use. Of course, this also leads to the possibility of fraudulent information being generated and owned. That is, what is stopping people from claiming that they are Larry Page? Would an equivalent to bombing of search results be possible here? I don't see an answer being offered presently.
Facebook and Google are both part ofDataportability. Dataportability and people indexing can, of course, both co-exist. Though it's yet to be seen in what form these services will be provided and when they will reach an inflection point beyond which a user expects availability of this information everywhere. What we can at least be sure of is that the social graph will be openly offered in the not too distant future which will enable many useful services. Here is a video telling more about Google's attempt.
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Elliot is joining us from Google where he has been their VP Global Communications and Public Affairs since 2005. At Google, he broadened the company’s messaging from a focus on only product PR to include all aspects of corporate, financial, policy, philanthropic and internal communications. Before that, he served as a Senior Fellow at the Council on Foreign Relations, a public policy think tank, as a professor at Columbia Business School and as SVP at Gap. Early on, he began his career as a Harvard-trained lawyer. 
Google's PR Chief Elliot Schrage 
Facebook is close to settling the lawsuit filed by Facebook's original founders Divya Narendra, Tyler and Cameron Winklevoss reports the 
While US social networks are waiting on advertisers to shifting their ad 
After the