Tag: Facebook

AI is no Knight in Shining Armor fighting to save Humanity

Last week during Mark Zuckerberg’s congressional hearing we heard Artificial Intelligence (AI) mentioned time and time again as the one size fits all solution to Facebook’s problems of hate speech, harassment, fake news… Sadly though, many agree with me that we are a long way away from AI to be able to eradicate all that is bad on the internet.

Abusive language and behavior are very hard to detect, monitor, and predict. As Zuckerberg himself pointed out, there are so many different factors that play into making this particular job hard: language, culture, context, all play a role in helping us determine if what we hear, read or see is to be deemed offensive or not.

The problem that we have today with most platforms, not just Facebook, is that humans are determining what is offensive. They might be using a set of parameters to do so, but they ultimately use their judgment. Hence consistency is an issue. Employing humans also makes it much harder to scale. Zuckerberg’s 20,000 people number sure is impressive, but when you think about the content that 2 billion active users can post in an hour, you can see how futile even that effort seems.

I don’t want to get into a discussion of how Zuckerberg might have used the promise of AI as a red herring to get some pressure off his back. But I do want to look at why, while AI can solve scalability, its consistency and accuracy in detecting hate speech in the first place is highly questionable today.

The “feed It Enough Data” Argument

Before we can talk about AI and its potential benefits we need to talk about Machine Learning (ML). For machines to be able to reason like a human, or hopefully better, they need to be able to learn. We teach the machines by using algorithms that discover patterns and generate insights from a massive amount of data they are exposed to so that they can make decisions on their own in the future. If we input enough pictures and descriptions of dogs and hand-code the software with what could look like a dog or be described as a dog, the machine will eventually be able to establish and recognize the next engineered “doodle” as a dog.

So one would think that if you feed a machine enough swear words, racial, religious or sexual slurs, it would be able to, not only detect, but also predict toxic content going forward. The problem is that there is a lot of hate speech out there that uses very polite words as there is harmless content that is loaded with swear words. Innocuous words such as “animals” or “parasites” can be charged with hate when directed to a specific group,of people. Users engaging in hate speech might also misspell words or use symbols instead of letters all aimed at preventing keywords-based filters to catch them.

Furthermore, training the machine is still a process that involves humans and consistency on what is offensive is hard to achieve. According to a study published by Kwok and Wang in 2013, there is a mere 33% agreement between coders from different races, when tasked to identify racist tweets.

In 2017, Jigsaw, a company operated by Alphabet, released an API called Perspective that uses machine learning to spot abuse and harassment online and is available to developers. Perspective created a “toxicity score” for the comments that were available based on keywords and phrases and then predicted content based on such score. The results were not very encouraging. According to New Scientist

“you’re pretty smart for a girl” was deemed 18% similar to comments people had deemed toxic, whereas “I love Fuhrer” was 2% similar.

The “feed It the Right Data” Argument

So, it seems that it is not about the amount of data but rather, about the right kind of data, but how do we get to it? Haji Mohammad Saleem and his team at the University of McGill, in Montreal, tried a different approach.

They focused on the content on Reddit that they defined as “a major online home for both hateful speech communities and supporters for their target groups.” Access to a large amount of data from groups that are now banned on Redditt allowed the McGill’s team to analyze linguistic practices that hate groups share thus avoiding having to compile word lists and providing a large amount of data to train and test the classifiers. Their method resulted in fewer false positives, but it is still not perfect.

Some researchers believe that AI will never be able to be totally effective in catching toxic language as this is subjective and requires human judgment.

Minimizing Human Bias

Whether humans will be involved in coding or will remain mostly responsible for policing hate speech, it is really human bias that I am concerned about. This is different than talking about approach consistency that considers cultural, language and context nuances. This is about having humans’ personal beliefs creep into their decisions when they are coding the machines or monitoring content. Try and search for “bad hair” and see how many images of beautifully crafted hair designs for Black women show up in your results. That, right there, is human bias creeping into an algorithm.

This is precisely why I have been very vocal about the importance of representation across tech overall but in particular when talking about AI. If we have a fair representation of gender, race, religious and political believes and sexual orientation among the people trusted to teach the machines we will entrust with different kind of tasks, we will have a better chance at minimising bias.

Even when we eliminate bias at the best of our ability we would be deluded to believe Zuckerberg’s rosy picture of the future. Hate speech, fake news, toxic behavior change all the time making the job of training machines a never-ending one. Ultimately, accountability rests with platforms owners and with us as users. Humanity needs to save itself not wait for AI.

US Consumers Want More Transparency from Facebook

Mark Zuckerberg went on record to say that thus far the #DeleteFacebook meme did not have much impact. We, at Creative Strategies, wanted to see if that was the case and more importantly we wanted to understand more about how the general public felt after the Cambridge Analytica incident. We ran a study across 1000 Americans who are representative of the US population in gender and age.

It would seem impossible for people to have missed the Cambridge Analytica incident, given the extensive press coverage. But, we wanted to make sure people outside the tech bubble were aware of it, so we asked: 39% said to be very aware, and another 37% said to be somewhat aware of what happened. Awareness among men was higher with 48% saying they were very aware compared to 29% among women.

There is no Trust without Transparency

Once we established awareness, we wanted to understand what would take to gain users’ trust back if their trust was indeed impacted. What we found was quite interesting. First, 28% of the people we interviewed never trusted Facebook to begin with. This number grows to 35% among men. When it comes to gaining trust back, it seems the answer rests on understanding and power. More precisely, gaining a better understanding of what data is shared (41%) and exercising the power to decide whether or not we are ok with sharing such data (40%). One of the answer options we gave was about making it easier to manage the amount of personal information share but this was not as much of an ask for the panel with only 33% selecting it. It seems to me that what users are asking for is more transparency rather than more tools to manage their settings, which makes a lot of sense.

How can I manage my information if I don’t even understand what and how it is used? This was a point that several senators made during Mark Zuckerberg’s hearing highlighting how long the Facebook terms of service document is. Zuckerberg’s response was that things are not as complicated as they seem, Facebook users know that what they share can be used by Facebook. Unfortunately, it is not as simple as that as the ramifications of how the data users share is used is quite complicated and even if you understand the Facebook business model, you would be hard pushed to know how far your data goes.

Better management of toxic content is also an action point that would help with trust: 39%. Not surprisingly, this is a hot button for women (49%) more so than it is for men (31%). I say not surprisingly not because I experience it first-hand but because over the years, there have been several studies that have shown a higher number of harassment cases for women online. The Rad Campaign Online Harassment Survey in 2014 found that women are more likely to use social media than men. Sixty-two percent of people who reported harassment experienced it on Facebook, 24% Twitter, 20% via email and 18% YouTube. The Halt Abuse Cumulative 2000-2011 analyzed 11 years of online harassment and found that women made up 72% of victims and men 47.5% of perpetrators.

Only 15% of our panelists said there is nothing Facebook can do to regain trust as they are just ready to move on to something else. Of course, if this sentiment were to be similar across other countries 15% of 2 billion users is a sizable chunk of the installed base that would disappear. What is interesting is that the number grows to 18% among people who said to be very aware of the Cambridge Analytica incident. Our study ran before the new details on the number of people impacted by the Cambridge Analytica data breach was released and before AggregateIQ and CubeYou breaches were revealed. It would be fair to assume that this initial negative sentiment might indeed grow.

Lower Engagement is the real Risk for Facebook

Privacy matters to our panelists. Thirty-six percent said they are very concerned about it and another 41% saying they are somewhat concerned.

Their behavior on Facebook has somewhat changed due to their privacy concerns. Seventeen percent deleted their Facebook app from their phone, 11% deleted from other devices, and 9% deleted their account altogether. These numbers might not worry Facebook too much, but there are less drastic steps users are taking that should be worrying as they directly impact Facebook’s business model.

Most panelists (39%) say to be more careful not just with what they post but also what they like and react to brands and friends posts. Thirty-five percent said to be using it less than they used to and another 31% changed their settings. Twenty-one percent said they are planning to use Facebook much less in the future. Others, in the free format comments, pointed out that they will take a more voyeuristic stance, going on Facebook to look at what people post but not engage. This should be the real concern for Facebook, as unengaged users will prove less valuable to brands who are paying for Facebook’s services.

Connecting People

After reading through the data on privacy concerns and plans to lower engagement one wonders why people are on Facebook in the first place. Here is where Zuckerberg’s explanation of what he created rings true to users: connecting people. Fifty-three percent of our panelists are on Facebook to keep in touch with friends and loved ones who don’t live in the area. Forty-eight percent said they are on Facebook to keep up with friends they lost touch with. Messenger and Groups are the other two drivers to the platform attracting 19% and 16% of the panelists. For those panelists who are very concerned about privacy the opportunity to keep in touch with people is even a stronger driver and seems to be enough to make using Facebook worthwhile.

Twenty percent of the panel said they are on Facebook because they are bored. This datapoint deserves a whole separate discussion in my view on the role that social media play as the digital gossip magazine or the real-life soap opera channel.

Facebook was built to connect people Zuckerberg kept repeating to senators in Washington and 40% of our panelists who have been on the platform for more than seven years wish Facebook could go back to be how it was. Alas, I doubt that is an option for Zuckerberg who did say though a paid version of Facebook might be an option. When we asked our panelists if they would be interested in paying for a Facebook version without advertising and with stricter guarantees of privacy protection 59% said no.

Implementing changes to the platform so that privacy could be better protected is not trivial when it impacts the core business model. Some of the discussion in Washington was pointing to the monopoly Facebook has which could be the biggest factor in determining how forgiving users will be. What is clear, however, is that the size Facebook has reached makes this a global issue, not just a US issue.

My Facebook For A Kingdom

I come not to bury Facebook, but to question it. I seek clarity, assurances. What is Facebook? Is it social media? An app? A global phenomenon? Instant messaging? The place where we connect, share our family photos, check in from our favorite restaurant? Probably it’s all these things.

But is Facebook a viable business?

Last week, Facebook posted third quarter revenues of $3.2 billion, exceeding expectations. Facebook’s profit for the quarter was $1.4 billion.

While the blogosphere cheered, all I could think was: Is this really all there is?

As I write this, Facebook ($FB) has a market cap of about $200 billion. The company is growing. It’s adding new services, buying up new platforms, and led by the only person I am ready to claim as the next Steve Jobs. Why, then, are they making so little money? $3.2 billion for a quarter? Given Facebook’s global influence, shouldn’t we expect much more?

By contrast, Microsoft — doomed, as the blogosphere repeatedly claims — posted quarterly revenues of more than $23 billion and a quarterly profit of nearly $5 billion. Samsung, the other giant tech company that the blogosphere is (so wrongly) touting as doomed, had a profit of $3.9 billion. Still another example: over the same period, PepsiCo had $17 billion in quarterly revenues, netting $2 billion.

Yes, I understand — Facebook is new, it’s growing, it’s connecting the world, and run by Silicon Valley’s best and brightest. Soon, all our photos, our videos, our news, recommendations for what to eat, buy, and watch — will come through Facebook. No one, no thing, no government, will know us as well as Facebook. My concerns, however, are two-fold:

1) what if this doesn’t happen?

2) what if this all happens — only, it still doesn’t matter?

It’s this second question that has me pondering Facebook’s future. Indeed, it has set me to wondering about the future of all global platforms built on digital advertising.

To the charts!

Facebook reported 1.35 billion monthly active users. That is staggering.

monthly active users

Lest you think “monthly active users” is not an appropriate barometer of revenue generation, Facebook proudly reports that it has a nearly unfathomable 864 million daily active users.

Try to comprehend such power and influence upon the world. A service that has nearly a billion people using it every single day.

daily active users

Should you believe aggregate “user” numbers do not matter much, what with “mobile is eating the world” and all, know that Facebook excels at mobile.

mobile daily active users

Imagine that: 703 million daily active mobile users. That’s more than everyone on every iOS device visiting every single day. Again, this is nearly unfathomable.

And those users are, obviously, scattered all over the world. Facebook handily breaks out the numbers by location.

revenue by geography

Now we’re beginning to see the problem. Almost half of Facebook’s revenues comes from the United States. If it wants to grow, as all companies do, and as investors in a $200 billion conglomerate demand, then it must:

1) extract more money from its existing users and/or

2) gain new users

The former is always very hard for every company, no matter how smart, how timely, how disruptive. Just ask Google how much it’s making from television, music or health data, for example.

That leads us to new users. For Facebook, already with over a billion users, it must now work very hard to add more people to its platform. Offering text-based services, experimenting with drone-powered Internet, and cutting deals with makers of low cost handsets and carriers around the world should help. The company is busy with each of these. However, the money from these unconnected billions, we must assume, will not be much more than Facebook already generates from its “rest of the world” group.

Spoiler: that’s not very much. How much exactly? Er, 87 cents. Really.

average revenue per user

Facebook earns an anemic 87 cents per “rest of world” user. That’s it. Not everyday — once a quarter! Think of all Facebook offers. Consider how many already use the service. As each new human being gets connected, purchases a smartphone, they will join Facebook. Good for them.

Yet Facebook’s incremental revenue from these new users may be nothing more than a measly 87 cents per. That seems not just low, but embarrassingly low.

The problem?

Advertising.

For every user type and every geography, nearly every penny Facebook generates is via advertising. Facebook is an advertising company. Specifically, digital advertising.

revenues

Is digital advertising really so inconsequential?

Over a billion users, nearly a billion daily and mobile users. All that data. All those features. Yet, Facebook’s quarterly revenues are just over $3 billion. Worldwide, its quarterly revenues per user are only $2.58. I spent as much on this morning’s coffee. I might even go back for a second cup this afternoon.

How much must Facebook know about us, how many billions more people must join Facebook, how many more (free) services must the company offer us all to boost that number to a whopping $3 per user?

Not With A Bang But An Interstitial

Remind me, please, to never ever spend my money on a company who’s entire source of income is dependent upon the very ads I never ever click on, the very ads which I’ve trained my brain to ignore.

The web will continue to spread, evolve and empower our lives and our machines. I can scarcely imagine what it will be like in 2050, 2100 and beyond. But I am confident that web businesses dependent upon display ads are destined for the scrap heap. Probably by no later than 2020.

Advertisements have always promised more than they deliver. Let’s not weep now that advertising can no longer deliver on its promise.

Technological Patriotism

Technology is breaking down barriers throughout the world. Conversely, a form of technological nationalism has taken hold, limiting tech’s rise. Expect such nationalist fervor to become more widespread, more virulent, probably more unfair. 

Technology is the new oil. It’s vital to our lives, our economy, our personal wealth, our national interests. As such, governments believe it is right to be intimately intertwined in the development, use, purchase, promotion and spread of technology.

Government inquiries, embargoes, regulatory barriers and tax disputes with technology companies will become commonplace. Fighting (and/or championing) such affairs will become a standard course of business for tech firms, much like complying with accounting standards are today. VCs, start-ups and well established high tech companies will need to fundamentally reconstruct their focus. I say this all without judgment.

That most of the world’s largest, richest tech companies are American — Apple, Microsoft, Google, Facebook, Amazon, Cisco — makes this new world order that much more combustible.

Should Five Percent Appear Too Small

Big technology companies are sitting atop sizable piles of money. Many governments believe they are owed their rightful share of these piles. The European Union (EU) alleges Apple is concealing taxes duly owed on sales and profits generated throughout Europe. Their allegations rest almost entirely upon the obvious: 

“Multinational corporations have a financial incentive when allocating profit to the different companies of the corporate group to allocate as much profit as possible to low tax jurisdictions and as little profit as possible to high tax jurisdictions.”

apple international

Examine Apple’s European org chart. What does it appear optimized for? If successful, the EU’s action could cost Apple billions. That is why, when Tim Cook told the US Senate “we pay all the taxes we owe — every single dollar,” he is no doubt being 100% accurate and equally irrelevant.

Tax battles are costly for tech firms, but just one fight of many. Regulatory barriers can similarly limit the full and beneficent spread of the world’s most liberating technologies. As famed tech investor Peter Thiel recently remarked:

“It probably would be better for Europe to find ways to be more innovative, rather than ways to regulate.”

This sentiment was echoed by uber-VC Marc Andreessen, an aggressive proponent of Bitcoin, a cryptocurrency that could, in theory, disrupt a core government function and major policy lever:

‘‘The problem with building a new product or service in the existing financial industry is that tens of thousands of pages of legislation and thousands of lobbyists are going to come down on you very quickly. We needed a new technology to have the wedge to be able to enter the market, to be able to justify all the work to rebuild the system.

With bitcoin, we now think we have that wedge.”

Neelie Kroes, the EU’s digital chief, has made it abundantly clear government is not so willing to rebuild its systems:

“I do wonder how many more Valley companies have to get slapped before the rest of them realize it’s time to start investing in better relations with the EU.”

Expect such “investments” to become commonplace. Likewise, add Amazon to that list of companies who apparently need to be “slapped”:

The European Commission is poised to launch a formal in-depth probe into its serious concerns over improper state aid, dragging Amazon into a multi-pronged clampdown on sweetheart tax deals that has already ensnared Apple in Ireland and Starbucks in the Netherlands. 

To absolutely no one’s surprise, Amazon has declared it pays “all applicable taxes in every jurisdiction that it operates within.” As with Apple, the accuracy of this statement is borderline meaningless.

Prediction: numerous governments will alter their tax rules simply to prevent other governments from getting a larger share of any Big Tech monies available. To wit: Why let Europe get a (theoretical) cut of Apple’s bounty when that money could be put to better use in America? Or Brazil? Or China?

Here, There And Everywhere

Tax disputes are certainly not the only concern for tech companies. Just this year:

The Chinese government (blocked) virtually all access to Google websites, instead of just imposing 90-second delays when banned search terms were used. Experts initially interpreted the move as a security precaution ahead of the 25th anniversary of the Tiananmen Square crackdown on June 4. But the block has largely remained in place ever since.

This latest move and previous actions by China have significantly impacted Google’s long term potential inside the world’s largest Internet market. Not surprisingly, China’s own Baidu has a 90% share of search — and not because users prefer its results to Google’s.

Despite Baidu’s ubiquity, many users are finding it to be a poor replacement—especially students, academics, researchers, and technicians who need to rapidly find reliable information online. 

It’s not only Google that faces such barriers. Twitter and Facebook are both “filtered” in China. Nor is the problem confined only to American technology companies.

Two popular messaging services owned by South Korean companies, Line and Kakao Talk, were abruptly blocked this summer (by China), as were other applications like Didi, Talk Box and Vower.  

Nor is hardware spared. Despite its stellar reputation for security, China’s CCTV ran a report earlier this year suggesting Apple’s iPhone location tracking could put state secrets at risk. If true, China obviously has no choice but to take swift, decisive action.

Government entanglements can take many forms. For example, Apple was caught off guard last month when regulators did not provide the requisite approvals for the company to begin legally selling its new iPhones in China. This despite Tim Cook’s many visits to the country, Apple’s sizeable third party workforce there, and the fact Apple and its partners had readied a major advertising push, believing they had done everything necessary to satisfy the various interested parties. Not so, apparently.

Surprise! Regulators have now proffered their assent, in large part due to Apple’s latest assurances that the American government cannot “backdoor” access iPhone data and obtain any of those China state secrets as noted above. 

Rules are rules. The costs required to successfully navigate such rules may not always fall the way prices of technology always seems to fall. Nor may such rules prove as leveling. As Bloomberg recently reported, myriad new government rules in China are likely to benefit local companies, such as Xiaomi.

ixYamAEfPMjY

Moreover, now that users in China can legally purchase iPhone 6, it may cost them more than anticipated. China’s government recently decreed that China Mobile, the world’s largest carrier, must reduce phone subsidies. The effect of such actions are obvious.

“High-end flagship phones will suffer the most from the regulation due to their prohibitive prices in the China market without subsidies.”  

“Samsung and Apple, as the two major high-end flagship phone makers, have the most to lose.”

A Day In The Life

Brazil has demanded Apple delete the Secret app from iPhone. Russia recently seized Bitcoin mining equipment at its border with China. Several US states have taken legal action against Uber and Lyft. The EU wants Google, Facebook and Twitter to help it combat what they view as online extremism — and what others view as free speech. The lesson, once again: Tech company interactions with governments will become the norm. Simply put, because tech touches everything.

No matter what you think of Europol‘s veracity, when Europe’s cybercrime unit writes the following, it necessitates a reasoned, continued and very likely financial response from well-heeled technology companies eager to profit from the Internet of Things:

With more objects being connected to the Internet and the creation of new types of critical infrastructure, we can expect to see (more) targeted attacks on existing and emerging infrastructures, including new forms of blackmailing and extortion schemes (e.g. ransomware for smart cars or smart homes), data theft, physical injury and possible death, and new types of botnets.

Death and botnets are always scary. Fighting them is no doubt expensive.

Technology’s promise carries with it parallel strands of fear, always. Consider how smartphones and social media have deepened our understanding of events around the world, such as the recent protests in Hong Kong. Now consider not everyone is pleased by this.

Tim Cook has spoken publicly about civil liberties. Is it fair to ask him — and Apple Inc — to choose a side in this latest skirmish? Is it fair to ask the same of Twitter? Many will.

You Say You Want A Revolution

I suspect you want me to say these many government interventions are dubious, the product of terminally greedy tax collectors, frightened regulators, and entrenched forces hoping to kill off outland competition.

I won’t. Mostly because such sentiments are not relevant.

The many reasons for these many government actions will grow in number, kind and intensity as technology continues to destabilize and disrupt industry after industry. You must understand: There is no bigger industry than government.

Tech is money. Money is power. All three are quickly spreading around the world and most of us want, at minimum, our perceived fair share. Do understand, however, that what’s right and what’s wrong are just two sides to this proverbial Rubik’s Cube.

Freedom is not a zero sum game. Not all believe the same is true for money and power. This is true everywhere. The really big disruption won’t just be of the established order, but of human nature. 

The Smartphone Is The Computer

I have spent the past three weeks in Detroit, a city possessing a rich history and an unremitting present. The vagaries of Silicon Valley count for little here. When I heard a young man ask — for real — if the Samsung Galaxy S5 was an iPhone or an Android, I knew there was much to glean if I simply put my smartphone down and listened.

Here then are my thoughts, insights and observations from the past one score and one day…

There are no smartphone wars. Rather, just amazing, affordable and truly expansive opportunity. Android versus iPhone means nothing to nearly everyone I speak with.

It is hard to overstate just how much television will be disrupted by the combination of children, tablets and YouTube. Free, always accessible content uniquely tailored to their own self-driven interests, available from any location is now possible — and the young will accept nothing less.

Facebook, not smartphones, not telcos, not automobiles, not Disney or ESPN, is connecting the world. Facebook is the new oil. If there is any ‘next Steve Jobs,’ it is Mark Zuckerberg. For whatever confluence of reasons, Zuckerberg divined the power of social media from the start, just as Jobs did with computing. No matter how rich, no matter how many struggles, I expect Zuckerberg to devote the remainder of his life to Facebook and all it represents.

There is middling outrage over the Facebook ‘user emotion’ study. As for me, this represents little more than A/B testing. In fact, I’m more angry over the iPhone keyboard. It’s so terrible. Is this some sort of secret Apple study? I mean, what other possible reason could there be?

Sheryl Sandberg

I am in the place where cars and mass production altered the course of humanity. Now, it is smartphones, social media, mapping, and code; these are re-making the planet as much as the automobile did in the 20th century. We are at the start of a new future. That’s just awesome.

I was often asked the best way to become a professional writer. It’s such an easy question to answer.

Marry well.

Oh, and should you be so fortunate to have an opportunity to write about what you love, for an organization with no concern for page views and provocation, as I am at Tech.pinions, then do not fritter away such a blessing.

I first learned about the SCiO from Techpinions. Point this device at a piece of fruit for example, and it will tell you what it is and even provide data on its composition, such as how much fat and carbs the item contains. Every single time I read more about this device, I think it is absolute magic. I told so many people about it that I now desperately hope it works as advertised.

scio2

I have nothing but good things to say about the Amazon Fire Phone. Yet, I can’t possibly recommend it to anyone. Why would I? In the US, at least, there is almost no reason to recommend any smartphone other than the iPhone or the Samsung Galaxy.

Microsoft’s Windows Phone faces a similar fate as Amazon’s Fire. Fair or not, can you imagine any outcome for Windows Phone other than failure? How does Microsoft start over? What amazing technologies, hardware and combination of services can they possibly deliver to make the world care about a device that is not iPhone or Android? I do not have the answers.

jeff_bezos_fire_phone

If I were in charge of Microsoft I would simply continue to make quality devices, offering great Nokia design, great Nokia imaging, incorporating Skype, OneDrive, HERE, Office and other Microsoft-owned products and services. Plodding along, hoping more and more Android vendors exit the business, picking up the scraps, all while leveraging my enterprise install base and security, identity and productivity tools, hoping users discover my superior value.

It won’t help. The smartphone market is lost to Microsoft.

The screen market, however, is barely in its infancy. Microsoft should forget smartphones and focus instead on screens. Screens will become like power outlets, we only notice them when they cannot be found.

Perhaps no company — not Apple, not even Google — possesses the breadth of services Microsoft offers. The problem, of course, is these services are not exposed for all the world to use. They are locked inside unwanted PCs, shoved inside tablet abominations, buried beneath the content we actually seek from our Xbox systems, sold mostly to IT directors, attached to products and platforms we do not need, and hidden behind an incomprehensible UI. Microsoft has built an anti-moat around its services, not locking us in but keeping everyone out.

azure1

The World Cup has introduced to millions the joys of live sports streamed to our smartphones and tablets. This is so in Detroit and around the country. It has never been more clear we all want to watch what we want to watch when we want to watch it where we want to watch it and on the device we want to watch it on. This is simple, obvious and unstoppable. It’s only a matter of time before we have a difficult time explaining to our progeny how it ever could have been anything else.

tim-cook-attends-pride-event

Last week, Apple CEO Tim Cook very happily took part in the San Francisco Pride Parade. Also, Hobby Lobby successfully won the right to provide only certain forms of contraception for its employees. What do these have in common?

Values equal profits.

Companies are publicly declaring their values, even going to court to defend and promote their values. This is only start. The technologies of Silicon Valley are breaking down barriers, bringing corporations to their knees and empowering individuals and groups around the world. With smartphones in hand, with continuous, real time, location-aware connectivity always available, we become our own corporations — with Uber, AirBnB and others merely pointing the way. We will work for ourselves and we will live by our values.

This is good. But it will be messy. Very messy.

CSC_0100SM

Hype aside, can you envision a situation where you use Bitcoin over, say, your iPhone ‘wallet’ linked to your secure iTunes payment data? iPhone offers ease of use and peace of mind. That’s a powerful combination. Still worse for Bitcoin, is that it is essentially digital cash in a world addicted to easy credit. Learn about the blockchain. Bitcoin itself is merely a bystander.

Given Android’s headstart in wearables, it’s hard to see Apple winning any wearable app wars. Given the limitations of its market reach, it’s similarly difficult to see Apple winning the “smart home” market without buying its way in. Sonos would be a good start.

Smartphones are borderline magical. That said, the iPhone 5s battery and the HTC One (M8) camera are embarrassingly bad.

In the past week, I’ve rented two movies from iTunes. I failed to finish both in the first sitting and was not able to watch either until after 24 hours later. iTunes refused, insisting the rental period had expired. This was true, though did not mitigate my anger. I may abandon iTunes rentals altogether. The lure of non-legal downloading is strong.

marissam

How much of Yahoo’s Alibaba riches is Marissa Mayer prepared to spend to get us to visit Yahoo? I suspect all of it. Nowhere I go does Yahoo seem to matter.

Idle prediction: Apple will not kill off the iPhone 5/c/s form factor this year, nor will Apple offer three simultaneous iPhone form factors. Yes, that means I am predicting only one large-display iPhone.

Not a prediction, just a thought experiment: In 2024, when a chid is born, they will be assigned either an Android or an iPhone. This will control everything.

There will be over 1 billion (American) Android activations this year, and several hundred million (Chinese) Android (AOSP) activations. Android is a stunning success story. All those involved in Android have long since earned our respect. That said, some analysts, bloggers and even industry insiders still have not grasped the obvious: Smartphones are the first screen. Smartphones are the primary computer.

Meg-Whitman-CEO-at-HP

The CEO of Yahoo is female. The CEO of HP is female. The #2 at Facebook is female. A man runs Android, the world’s most popular OS. He is from India. The CEO of Microsoft is from India. The tech sector points the way forward not only with its products.

Be smart. Work hard. That’s true everywhere.

Life Liberty And Pursued By Google

If we do not have a right to be forgotten on the Internet then we have no right to privacy. None. We cannot allow Google and Wikipedia’s Jimmy Wales to strip us of this basic protection.

It appears, however, that is their intent.

Last month, in a freedom-fighting shot heard round the Internet, the European Court of Justice ruled people have a “right to be forgotten.” The Court stated every private citizen within 32 European Union nations can demand Google (and other search engines) remove links about them which are “inadequate, irrelevant or no longer relevant.”

This decision is freedom.

Let’s say you defaulted on a car loan 20 years ago, your first year out of college. Should that be the first thing that pops up under your name when anyone, anywhere, anytime, maybe forever, types your name into Google? Must you forever be branded?

Thanks to the EU’s ruling, you can now have the link removed. The link — not the data, not the facts, not the source. The facts have not been changed. The document Google’s link has pointed to, a local newspaper article, say, or possibly an old legal filing, still remain in existence. But, you can no longer be unduly punished by Google’s unforgiving, unforgetting algorithms.

We need a “right to be forgotten” in the United States!

Indeed, while credit agencies must — by law — wipe clear their data on us from many years ago, the far larger, far richer, far more encircling Google faces no such restrictions. A small, local newspaper may have written a blurb about students unable to pay back their student loans in a timely manner. In 1998. And your name was included. Google enables the world to instantly know this about you, years and even decades later.

You’ve long since made good, of course. You satisfied your debts. Yet every future employer that types your name into Google sees that information, possibly at the very top of the page. Fair? Of course not. Must we private citizens be so powerless against Big Data collections? Technology is supposed to be empowering — and not just for a giant corporation, but for individuals, all of us. That’s the promise of technology, after all.

Google thinks different.

Soon after the ruling, Google Chairman Eric Schmidt stated “the balance that was struck [between a person’s right to be forgotten and the public’s right to know] was wrong.”

Curiously, it is Mr. Schmidt who is leading the company’s efforts to implement the court’s decision. Following the court’s ruling, Google appointed an “advisory board,” because, as the company stated:

“The court’s ruling requires Google to make difficult judgments about an individual’s right to be forgotten and the public’s right to know. We’re creating an expert advisory committee to take a thorough look at these issues.” 

Spoiler alert: Google’s “advisory committee” is stocked with ringers. These include Google chairman Eric Schmidt, Google’s lead attorney, David Drummond, and Wikipedia’s Jimmy Wales.

I confess I don’t know the views of all seven members on the Google-appointed committee. But I do know some. Eric Schmidt, for example, has offered numerous public statements on the issue of privacy, often going up to, maybe even beyond the creepy line. Here’s just one example:

“If you have something that you don’t want anyone to know, maybe you shouldn’t be doing it in the first place.”

Google’s chief lawyer David Drummond called the Court’s decision “disappointing”and stating it “went too far.”

Your laws, Europe, are impeding Google’s grand plans.

However, it is Jimmy Wales, founder of Wikipedia, and a rather curious selection to Google’s advisory committee, who has waged the most vigorous and public opposition to this ruling. I interviewed Jimmy Wales for TechHive. He told me the court’s decision is censorship, plain and simple.

It absolutely is censorship and no one serious has any doubts about that at all. As a simple test, ask yourself whether this would be possible in the U.S. without a repeal or modification of the First Amendment—it would not.

Jimmy Wales is profoundly wrong.

The First Amendment was instituted to protect individuals. Yes, it is a right against the government, not private business. Still, his suggestion that empowering citizens to limit the lasting personal harm from Google’s algorithms is the equivalent of repealing the First Amendment is disheartening.

We have laws that limit pornography. We have laws that limit how long credit bureaus may keep their data. We have laws regarding copyright and content distribution. Our society benefits from these. Empowering individuals to have non-relevant or no longer relevant links about them removed from Google will not require a repeal or modification of our first amendment. Indeed, knowing search engines can’t hold onto or link to our private data forever may foster more speech and greater diversity.

Wales, however, takes the hard line stance, conferring all rights to Google while leaving individuals relatively powerless:

Google goes to an enormous amount of effort to write software to express editorial judgment about which links are displayed—that’s freedom of expression.  

What we may not do, if we are respecting freedom of expression, is use the force of law to suppress a link to content that is legally published and true.  

In Wales’ world, a single slip up, captured by Google’s globe-spanning servers, and you are forever branded.

The police must (now) receive a search warrant before tracking our movements by cell phone or cell tower. Credit agencies can’t hold onto tax lien data after a decade. Google, however, is timeless — no matter how damaging. 

It gets worse.

Till now, we’ve had the power to decide whether to hand over our privacy or not. Our private data, our searches, our online purchases, the web pages we viewed were recorded by Google, that data then analyzed and sold, often in aggregated form. In return, we received various benefits such as free search and maps. Perhaps we got a raw deal, handing over far too much in exchange for meager gain. But, it was a deal nonetheless, a choice we all made. Now however, even this lopsided quid pro quo is vanishing. We are being captured without consent, and without ever striking a bargain.

I can avoid Google.com. I can route around Google fiber. I can attempt to escape Google’s servers and Google’s relentless bots, though it’s nearly impossible. How can I avoid Google satellites, Google balloons, or Google drones? These can spot us, soon identify us, link that data to time and geolocation, upload it to their servers, in near-real time, then let anyone, anywhere, forever, know the moment I simply walked outside my front door.

And when I got into my car.

And when I got out.

And where I drove and how fast and where I stopped.

An entire dossier available on me of nearly every moment of every day, available to anyone, anywhere, simply because I stepped off my front porch. You, as well.

Yet Wales and company offer us no power to limit this.

Understand, I am not opposed to these truly amazing technologies, far from it. They are connecting people across the world, enabling the sharing of content, changing views of life and geography. They are empowering. But they cannot be allowed to strip us of our liberty.

When Google purchased Skybox Imaging, a satellite company, Skybox stated:

We’ve built and launched the world’s smallest high­-resolution imaging satellite, which collects beautiful and useful images and video every day.

Amen. This type of bold vision, and the execution that made it real, are laudable. Such efforts can aid humanity — not just in America, of course, but all around the world. Mapping our world has, despite many awful instances, helped people advance. This does not, however, give Google — or any company or group of companies — the legal right to capture and sell me, especially when I offered no consent in any form.

The FCC’s decision to allow commercial drone videography can absolutely make our lives better. But Google should not have the right to allow its drones to record me, my time and place, then make that information available to all (or to whom it chooses) without my explicit and ongoing consent, and without a means to have the data stripped from its servers.

This is basic.

Yet, per Jimmy Wales, I have no legal right to say no, no legal right to demand Google erase that data.

How utterly disempowering.

It gets even worse.

The EU Court said Google can refuse to remove non-relevant and harmful links if they remain in the public interest. Google seized on this opening:

The company can reject a takedown request if it thinks the information is in the “public interest” – a definition that will include information about private individuals that others have a valid interest in knowing.

By leveraging this rather amorphous “public interest” baseline, I fear Google will attempt to achieve its global business ends by pitting me against you. This cannot be tolerated. 

Rights must rest with the individual, not a company, not a “public.”

It may be in the “public interest” to know when I, a private citizen, walk outside my door, or when I step into a public restroom, or when I do not drive my Prius at optimum MPG. Such data could aid public transit systems, for example, or help the government craft better driver training standards. But an individual has had his privacy stolen, has been disempowered. Rights that do not rest with the individual are no rights at all.

Am I to be made powerless? Are you?

Why must we have no legal recourse, none at all, to have harmful and unnecessary information about us removed? That Google would appoint people so opposed to this basic freedom of privacy is deeply troubling.

Many in the tech community argue for a technological solution. A technological cloaking device, for example, that (virtually) hides us from Google, Facebook, drones, bots, satellites and the like.

No!

We should not be forced into a technological arms race. It may offer temporary protection but it is not liberty.

Google’s vision is clear, their disparate businesses all possessing a common idea: to connect everything and everyone. That is astoundingly audacious. No one else is attempting this. Google are to be praised for their daring, their mission, their execution. They have earned billions of dollars over the years and much respect. But Google has no right to deny us our privacy. They have no right to take from us. We must not allow this.

Jimmy Wales is wrong — and his view of the future is a limiting one, disempowering people, placing algorithms and web bots above humanity. Don’t let this happen.

 

Note: I have asked Google for comment on the ruling and asked them also to comment on how they selected members of the advisory committee. Should they respond, I will update this column.  

Note: My discussions with Jimmy Wales are here and here (via Twitter). 

Back To The Past With Oculus Rift

The pundits tell us Facebook’s purchase of Oculus VR is proof virtual reality has arrived, at long last. The future is now.

Except all I can think about is the past.

That’s what I mostly want from Oculus, or from Sony’s Morpheus or any similar device: the past. Not virtual reality or virtual presence, but a virtual time portal, a way to explore — to feel fully a part of — the events that shaped this world, this country, my life.

I was there with Jobs and Woz when they first started Apple!

Full disclosure: I was not there with Jobs and Woz when they first started Apple.  

Imagine putting on your Oculus headset and instead of playing the most amazing, immersive game of Halo, you are tasked with parachuting onto a Normandy beach. It’s D-Day. You are there as it happens. Understand, this is not at all to diminish anyone’s effort or sacrifice, or confuse reality with imagination, but to enable each of us to viscerally, visually behold great moments in history in all their nasty, sweaty, dull, grinding, vicious glory.

Let’s explore not just the building of the Great Pyramid but the discussions on its construction. Watch the burning(s) of the library of Alexandria. Witness our own birth.

With the amount of documentary video evidence now at our disposal, and all our computing power, social media data, location-based tweets, check-ins and other information, soon we will be able to reconstruct the momentous events of our present in such a way our children really can use VR to transport themselves back to today’s equivalent of the founding of Apple, or, yes, go inside the deadly flights of 9/11.

Imagine how much better we might understand people and cultures, events, greatness, failure and chance if we focused the development of Oculus not on virtual realities but on very human ones.

Oculus Rift

We have arrived at a point that is, for real this time, only a short distance from making virtual reality a reality. Let’s not blow this chance.

I’m not that old. Despite what my son thinks, I’m not. My parents are still alive. My grandmother died a few years ago — after being struck by a car. I can remember what it was like pre-iPhone; hell, before everyone had a PC in their home. It’s taken a long time to get here, to a future we expected would happen by the 1990s, which makes me uneasy that nearly all the focus and all the cash behind VR is centered on gaming.

This is exactly what Facebook founder Mark Zuckerberg stated when he bought Oculus:

When you put (Oculus) on, you enter a completely immersive computer-generated environment, like a game or a movie scene or a place far away. 

and…

The (Oculus) Rift is highly anticipated by the gaming community, and there’s a lot of interest from developers in building for this platform.

Ugh, gaming.

It’s not just Zuckerberg, of course. The computer industry seems intent on constructing virtual reality mostly for gaming. So much, in fact, the tech press accepts this vision without comment. The Verge:

Nothing delivers a feeling of immersion better than VR. VR has been a dream of many gamers since the computer was invented. 

In discussing their VR headset, Sony Studios president Shuhei Yoshida noted it was the “culmination of our work over the last three years to realize our vision of VR for games, and to push the boundaries of play.”

Explaining the amazing potential of virtual reality, Wired similarly focused almost exclusively on gaming.

In a traditional videogame, too much latency is annoying—you push a button and by the time your action registers onscreen you’re already dead. But with virtual reality, it’s nauseating. If you turn your head and the image on the screen that’s inches from your eyes doesn’t adjust instantaneously, your visual system conflicts with your vestibular system, and you get sick.

Videogame pioneer John Carmack is CTO of Oculus.

Oculus received major venture backing from Andreessen Horowitz, after the product was demoed at a gaming conference.

Really, I could not care less about games or gaming.

Imagine, instead, being ‘there’ the very first time the Beatles performed at the Cavern Club. Or witness a father watch the last of his six children die as the plague sweeps across western Europe.

Is it wrong to embrace the future yet be so utterly fascinated by the past?

How can any game compete with actual human history?

The pace of VR technology is accelerating. Delivering sight, sound, motion have nearly all been solved. But let’s not have the potential of this technology become so limited.

I have hope. Many developers are working on building immersive non-gaming experiences for Oculus and similar devices. Though not currently practical, this large-scale D-Day simulation points, ironically, to a rather stunning future.

d-day

Can such efforts succeed? That’s up to us, I suppose, and what we desire from our very best technologies.

Zuckerberg has also said “one day, we (at Facebook) believe this kind of immersive, augmented reality will become a part of daily life for billions of people.” I believe him. But instead of billions of us being entertained, which I understand is enticing, what if we could (almost literally) experience the reality of someone thousands of miles away, a person we will never otherwise meet, one who is so much unlike us?

Or, perhaps, following a nasty spat at work, HR makes us (virtually) experience the demands, deadlines and plainly different personal outlook of the boss we think we can’t stand because she refuses to understand our situation.

Virtual reality could soon become the very best way for businesses, clubs, universities, and start-ups to tell if you are the right ‘fit’ for their organization: “your resume is amazing, Mr. Hall, but let’s see how you interact with our staff and customers first before we make our decision. Here, wear this headset for the next 60 minutes.”

Call someone a forbidden word at school and the principal may require you don the VR headset to better understand how those slings and arrows do wound. Messy? Yes. But also transformative.

The Oculus Rift headset

I am not sure we can even begin to fathom how ontologically disruptive this technology will be, even though it is on the cusp of becoming our new actual reality.

With virtual reality, we will connect with people in profound new ways. We can also connect with times and places. Ecotourism is a massive industry but I am far more excited about historical tourism — visiting a specific place not because it’s restful or beautiful but because of who was once there and what the place once meant.

I completely understand why Oculus and the others, including Microsoft’s Project Fortaleza, are starting first with gaming. Yes, I know there will be porn. But there can be so much more, and that’s what I most look forward to. Keep your high score. Take me to where and when our today was made possible.

Nokia Has Fallen. America Wins The Smartphone Wars.

Nokia has fallen. Not even the name will remain. America’s victory in the smartphone wars is complete — for now.

Last week’s news from the front lines of the smartphone wars illuminates the scope of America’s rapid mobile ascendency.

From Microsoft:

“Microsoft acquires Nokia’s smartphone and mobile phone businesses, its design team, most of its manufacturing and assembly facilities and operations, and sales and marketing support.”

From Facebook:

Mobile active users are 1.01 billion as of March 31, 2014, an increase of 34% year-over-year.

From Apple:

“We sold almost 44 million iPhones, setting a new March-quarter record.”  

And the week before, from Google:

Q1 2014 earnings totaled $15.4 billion in revenue, a 19% increase over the previous year’s $12.95 billion. Oh, and their Android platform is on nearly 80% of every smartphone in the world.

Designed By Apple And Google And Microsoft In America

iOS, Android and Windows Phone – American designed, American-led operating platforms all – account for nearly 98% of the global smartphone market, a truly stunning statistic. There appears no line on the horizon.

smartphone market share

As the world rushes to replace their mobile phones with smartphones, even Microsoft, now a distant third, is well positioned to fully capitalize on mobile. Their takeover of Nokia includes the company’s very popular Asha brand of hybrid smartphones/featurephones, as well as Nokia’s traditional handset business, which still ships more than 200 million devices a year. (Second only to Samsung)

Should America celebrate these results?

Yes.

Should the rest of the world take bold, perhaps costly action to limit the continued rise of America’s mobile dominance?

Probably they should try.

The Pivot To Mobile

How did America so convincingly win the smartphone wars? First and foremost by attracting, developing, retaining, and fully incentivizing the best and brightest.

Vision and execution are also paramount. Consider:

  • Apple’s relentless pursuit of optimizing hardware while simultaneously improving upon and expanding the modes of interaction with that hardware.
  • Google encourages, captures and then attempts to make sense of (and profit from) the multiple data streams we generate.
  • Facebook seeks to connect the world on a fully human level.
  • Microsoft has spent the past four decades making computer applications more empowering and productive.

Also, and despite their vast size, these companies move with speed. Witness Facebook’s head-turning pivot to mobile. I think Mark Zuckerberg should be hailed for this accomplishment.

facebook pivots to mobile

Weaknesses Along The Front Lines

Are there weaknesses in America’s smartphone leadership? Several, in fact.

Apple

iTunes is the center of Apple. It’s what locks us in, it’s what helps lure new customers. iTunes revenues are falling on a per-user basis. If iTunes spending falls on a per-user basis, I believe hardware margins will follow suit. Apple is optimized for hardware margins. The iTunes trend line thus appears ominous.

Revenue-per-iTunes-account

Google

Google still does not have an effective messaging strategy. This is confounding. There may be no more important mini-platform in the near term than messaging. Facebook, of course, battered its way into this critical market, dropping $20 billion on Instagram and WhatsApp in a single year. Google will almost certainly need to do the same. Larry Page has the wherewithal to follow suit — does he have the necessary humility? I am not convinced.

Google’s primary response to date, requiring SMS and messaging to default to Google’s Hangouts service, seems a rather anemic response.

Facebook

Though it claims over a billion mobile users, Facebook has no smartphone platform. This perpetually locks them out from critical user, usage and location data. That Facebook is now looking to buy its way into the wearables market, which potentially delivers incredible amounts of user data, should be no surprise.

That said, what will Mark Zuckerberg do when the ‘monopoly’ money runs out? Successful businesses aren’t sustained on buying up others’ creations.

Microsoft

Despite the well reviewed Windows Phone 8.1 OS, Microsoft has yet to reveal it can create a thriving mobile-first business.

Manufacturing

Microsoft’s purchase of Nokia notwithstanding, the vast majority of manufacturing of every piece of smartphone hardware is outsourced. The case has been made that regular interaction with new materials and new manufacturing processes will lead to those companies (and nations) becoming the primary source of innovation, thus trumping Apple, Google et al. This idea has not been borne out and I suspect it never will. Shedding our manufacturing abilities has no doubt damaged America’s middle class, but not its technology leadership.

Money and the Snowden factor

Smartphone platforms almost certainly contribute to a nation’s economic well-being and security. Smartphones link people, telecommunications and banking, holds our most personal information, tracks our movements, manages our identity, logs our purchases, connects us to first responders, and provides vital access to news, cultural and learning resources. We have to assume larger nations in particular are keenly incentivized to repel America’s technological reach. This is especially true in a post-Edward Snowden environment.

It’s not simply a matter of geopolitics, of course. Real money is at stake. Google and Facebook are effectively banned in China — and the in-country alternatives are now worth billions.

Over 90 million smartphones sell in China every quarter. China may decide to lock out Apple and Microsoft — or demand unreasonable ‘rents’. If China creates barriers to Apple, for example, or perhaps does all it can to promote or subsidize homegrown companies such as Xiaomi, then certainly Apple’s growth potential will be diminished.

I would also not be surprised if government sponsored firms in India or Indonesia, for example, purchase BlackBerry or commit significant resources to improving the open source version of Android (AOSP), which is free of all Google services. Success by any means necessary.

smartphone sales by country

Why This Matters

Smartphones are the next great phase in computing’s decades long remaking of work, play, learning, commerce, creativity and connectivity around the planet. They connect us with nearly everything. America is in the lead now. Americans may wish to celebrate this. To remain at the top, however, will demand vigilance, daring and vision.

Each phase of the computing revolution appears to come faster than the one before. The smartphone wars will soon be the technology revolution of the past.

Why Bitcoin Still Does Not Matter

You can buy Bitcoin today, swap your next mortgage payment for this aggressively hyped “cryptocurrency,” lose it all to crime, fraud or incompetence, no questions asked. Yet you are still legally barred from even participating in crowdfunded investments of fully vetted Bitcoin start-ups.

Clearly, something is wrong.

Marc Andreessen and his A16Z venture capital group have regularly taken to Twitter to preach the Bitcoin gospel. Andreessen is such a believer in the expansive financial power of Bitcoin he intends to significantly increase his firm’s $50 million investment in the Bitcoin ecosystem — hinting he may invest upwards of hundreds of millions over the next few years:

Like the Internet, Bitcoin will emerge as an accepted technology, Mr. Andreessen argues, as it becomes more regulated and consumers and businesses become more comfortable with the idea of digital currencies.

Want to ride the Bitcoin start-up wave? Sorry, you can’t. The government considers you a lowly “non-accredited” person. Meaning, you cannot put any of your money into any venture capital fund or into any of its portfolio companies. You cannot even participate in a equity “crowdfunding” service, the kind that pools small fund amounts from dozens, potentially thousands of investors, eager to be part of the next big thing.

No matter how much you believe in Bitcoin, no matter how fully you believe in Andreessen et al, as a non-accredited person you won’t be able to legally invest in any of their well-promoted start-ups; at least, not during these heady land rush days. Your only hope is to buy a Bitcoin and pray for the best.

The early financing game continues to route around you.

Fair? Surprisingly, many think so, even those who have directly benefitted from the web’s otherwise open nature. 

Tech news blogger site, GigaOm, which has received millions from venture capital, recently editorialized that preventing the “crowd” — that’s you and me — from investing just like venture capitalists is actually a good thing:

Full-blown crowdfunding — which allows anybody to buy shares in any company on the internet — has attracted hype, but it’s still not here. There are good reasons for that.

I disagree.

I believe the short history of the Internet reveals empowering individuals ultimately creates more new net value. Disruption works. There is nothing more disruptive than access to money — and the more you have, the greater the access. Being able to invest in start-ups from the start can do just that.

We can vote, own a gun, volunteer to serve in the military, run for public office, purchase Bitcoin, post intimate photos of our junk on social media. Yet we are still prevented by law from getting in on the ground floor.

This makes no sense.

Tens of millions have already been lost on Bitcoin, still more on day trading. Gambling is legal, much of it state-sponsored. There remains a plethora of “no money down” mortgage options that surround us. Given these high-risk, middling-reward options available, why then is the government still preventing us from investing in the high-risk high-reward field we know so well? Few understand the value of Snapchat, or Airbnb, or some amazing new smartphone beacon technology as keenly as we, yet still we are denied the opportunity to partake in the wealth-creating, sanctified pursuit that is venture capital.

In the valley of disruption, the biggest disruption of all eludes us.

The Crowd Is Kept Waiting

marc-andreessen_650x455

I would, right now, hand Marc Andreesson my spare $1,000 and have him place it in any A16Z fund, or directly into a Bitcoin-specific investment, such as their $25+ million investment in Bitcoin “wallet” Coinbase.

Even though I think Bitcoin itself is toxic.

I want in. I want in now. I know there is ample room.

According to the National Venture Capital Association (NVCA), there are approximately 450 venture capital firms in the US (based on available 2010 data). VC firms are managing $177 billion in committed capital. The average fund size (again, for 2010) was $149 million, with about 2,750 companies receiving funds — 1,000 received funding for the first time.

I believe I can do better than most of these sanctioned venture capitalists, at least in web tech — if given the chance.

You, like me, read up on this industry daily. We work in this industry, and have for many years. We know the CEOs, the investors, the products, the markets, the technologies, the dreamers. We understand the potential and respect the risks. But still we are kept on the outside, looking in. This is not merely denying our abilities, it is denying our potential to further empower this great country.

Again, from the NVCA:

Venture capital is a catalyst for job creation, innovation, technology advancement, international competitiveness and increased tax revenues.

If venture capital achieves all that now, imagine how much more good can be accomplished when you and I and everyone we know can directly add our monies and our smarts to the industry, right from the start. Question: Why haven’t the venture capital firms fought for empowering the crowd as eagerly as they have hyped the still suspect ‘currency’ they expect the crowd to use?

The Wisdom of the Government

I am an expert in technology, not investing. This has not prevented me, however, from leasing a car, mortgaging a house, buying stock in numerous companies, some with share prices hovering around $1. I am now ready to invest in start-ups. I know this industry and I know what can work. Regrettably, the government still won’t let me.

For the government, it’s still a rich man’s game. The only way you can contribute money to a venture capital fund (or even to a equity crowdfunding platform), is if the US government labels you an “accredited investor.” To earn this lofty designation, you must…

“…have a net worth of at least one million US dollars, not including the value of (your) primary residence or have income at least $200,000 each year for the last two years or $300,000 together with (your) spouse if married and have the expectation to make the same amount this year.” 

Anything less, and you are callously labeled “non-accredited.” It breaks down like this: If you’re not riding the Google Bus, you probably don’t qualify. Doesn’t seem fair, I know.

This could all change, however, and perhaps quite soon. 

The 2012 Jumpstart Our Business Startups (JOBS) Act altered many of the rules for funding start-ups. Title III of the JOBS Act could potentially allow those of us who are non-accredited to finally invest in start-ups, just like ‘real’ venture capitalists, should the SEC give the ok.

Be warned. There are several caveats to the rules changes the SEC is pondering:

Most notably, the government appears to still remain highly suspicious of the “equity model” of crowdfunding. (Kickstarter-like models, with no money on the line, are acceptable.)

The SEC appears set to require that any start-up seeking to raise money via equity crowdfunding will only be able to raise up to $1 million every 12 months. In addition, there will be rather arduous disclosure requirements that will cost start-ups dearly — money they obviously do not have. Worse, the very act of going through the crowdfunding disclosure process will likely brand any such start-up as unworthy to (ever) be invested in by Big Venture Capital, which can review the start-up’s unique assets behind closed doors. Thus, those with the most promising of ideas or technologies will remain incentivized to bypass the crowd. (Again, that’s you and me.)

In addition, we “non-accredited” investors will only be able to invest about 5% and no more than 10% of our income or assets.

Despite all this, the gate is rattling.

The SEC has apparently finished listening to comments on crowdfunding. Now, they are mulling exactly what to do. Perhaps it’s my techno-optimism, but unlike many financial analysts I fully expect the SEC to do the right thing. Once they do, once they allow the likes of you and me to invest in start-ups, expect a massive sea change.

It Don’t Take A Weatherman

I am no pollyanna. I’m quite certain clubby insiders will wish to remain clubby. The very best VCs will continue to grow their massive funds from institutional investors, not folks like you and me. Fraud will not magically disappear despite the vigilant buzz of the crowd picking through every document a crowdfunded start-up lays bare. The “magic the gathering” Bitcoin ‘bank’ painfully proved to far too many unfortunates that fraud and failure remain part of the human condition, even at the farthest reaches of the technology galaxy.

But we will finally have our shot.

Yes, we know venture capital is risky, even in small amounts. Is it any more risky than buying $10,000 in Mt Gox Bitcoins? Is it any more risky than flipping houses? We understand, as the Wall Street Journal states, that “over 60% of high-tech start-ups…failed to return any capital, and just 7 percent were essentially jackpots, generating returns of five times or more.” So be it. True equity crowdfunding will finally offer me a shot to invest at the start — just like blogging came along and enabled me to become a professional writer.

In fact, I have already registered with the “equity crowdfunding” site Startup Valley. No, they can’t legally allow me in, not yet. I am also registered at the crowd funding portal RockthePost. Still waiting there as well. That’s all right. My money is patient.

No non accredited investors allowed

Who Will Be My Venture Capitalist While I Cannot?

It strikes me as both odd and extremely unfair that anyone in America can, with a bit of effort, buy Bitcoin. They can spend their life savings on it, in fact, and lose everything, and do so with almost no real recourse. Yet, for nearly all of us, including those of us who track this industry so closely, we cannot invest in any of the start-ups that are explicitly focused on growing the Bitcoin ecosystem!

Look, don’t touch. Buy, don’t own. So much for the belief in the wisdom of the crowd.

Sure, you can go on Kickstarter right now and “invest” in, say, that new Veronica Mars movie. If the producer generates enough, you might earn a free download of the final product. As for a financial stake? Forget about it.

We are being played. Worse — we are kept from playing. Still.

Billions in venture capital will be invested in the US this year alone. How much of it are you a part of? Zero, no doubt. You’re kept on the outside looking in, even in Silicon Valley — the land of the great disruptor. 

Check out some of the top VC-backed tech companies. You know these intimately. You use their products. You have followed them from the beginning, contributed to their success. Yet you are unable to garner any potential windfalls when they go public.

Startup valuations

The first start-up to receive venture financing was Fairchild Semiconductor — in 1959. That was 55 years ago. It’s been a long, long wait to allow all adult Americans to be part of this extraordinarily cozy, massively wealthy, highly influential sector we  glorify so dearly. I am confident it will happen very soon.

No more…Brian S Hall. Writer.

Soon…Brian S Hall. Writer. Venture Capitalist.

As it should be.

The Mystery Of Flight 370 And Friends On The Internet I Will Never Meet

My mind continues to reflect back to those with loved ones on Malaysia Airlines Flight 370*.  Desperate, hopeful, hopeless, an inexplicable truth staring back at them. What can they do? Wait still more? Call?

I picture each of them picking up their phone, praying, miracle of miracles that their loved ones or colleagues are somehow safe, alive, and will return soon. The phone rings and rings – no answer, obviously. Or perhaps, they hear a carrier’s hollow, computerized message and then an empty silence, their turn to speak. What is there to say?

For a few, the horror and blessing of their loved one’s recorded voice, on infinite loop, tragically disconnected from all we are connected with – which, even in the 21st century, remains frightfully limited to the digital and the physical.

Would you leave a message? Where does it go?

Might an errant text arrive after the terrible truth becomes known? “Mom, Dad. We land in Beijing in just a few hours. See you soon! Much love.”

Despite the persistent limitations of our technologies and their callous lack of both awareness and emotion, I am nonetheless thankful for the many new forms of connectivity we have constructed for ourselves. For all their technical trappings and the radical new linkages between man and machine, I believe they are simultaneously enabling a more profoundly human world.

Never Too Far Away

Death remains blunt and obvious. For those of us old enough, however, born in an era of non-constant connectivity, we can still recall the powerlessness when our parents picked up stakes and moved us far away from all we knew. Dear friends we would never again see nor speak with. We might forget their names, forget what they looked like. We become ghosts to them, as they are ghosts to us.

No longer. Friendships now can easily survive great distances.

It gets even better.

There are friendships that are only now even possible, meaningful relationships with people we never actually meet and likely never will. This should be celebrated.

Yes, we now regularly interact with machines, artificial intelligences, databases, Siri and her cohorts, and it’s all amazing. But we are also interacting with more people than ever before as friends. I think this may have an even more lasting impact on humanity’s future.

I ‘speak’ regularly with people on Twitter, people I call friends, yet have never met them and know I almost certainly never will. I miss them when they are absent.

When they are offline for several days in a row I start to worry. Who can’t take time out to tweet they are busy and won’t be online for a week or so? Something must be wrong!

We share jokes, photos, advice. We listen. We recommend. We know each other’s likes and dislikes. We cheer when they get a new job or announce a new addition to their family.

Understand, this is not at all what I imagine a call on LiveLinks to be like. It’s no 90s phone sex thing, no going onto Yahoo chat and pretending to be someone you are not. We are real. These connections are our friends. We are like pen pals of old — only at infinite scalability and with far more robust communication modes at our disposal.

Is there a name for these types of friendships? Are they more or less special? It seems less, if I am forced to choose, though I admit to more than once being engaged in a discussion with good friends, friends mere feet away from me, then stopping to converse with one or more ‘friends’ on Twitter.

Of All The Souls I Have Encountered

We happily accept we have methods of maintaining contact with friends and family across any distance — via texting, FaceTime or Facebook, for example. Such methods are available to children as equally as to adults, fully accessible and without cost for most of us. That’s wonderful. What we rarely discuss, however, is these same tools have led to an entirely new reality: connecting with people on a deeply personal level, without ever meeting them in the flesh.

They are not ghosts, though we never see them. They clearly impact our lives, though we may not even know what they look like, what they sound like, their height, shape, skin color. I think this is profound.

I never want to reach out and discover a loved one no longer on the other end. But what we have today is, I believe, much better than before. Which probably makes it far more jarring when someone we know, in the flesh or not, becomes forever disconnected from us.

*At the time of writing, there were still no confirmed sightings of Malaysia Airlines Flight 370. 

Image courtesy of Bloomberg.  

The Death Of iPhone. The Death Of Android. The Rebirth Of Facebook.

Well, that was a heckuva week.

Google sells Motorola for billions less than they paid for it. Apple sells millions fewer iPhones than nearly everyone expected, then directs guidance lower. Facebook becomes a mobile first company, for real this time. Amazon investors prove they don’t quite have unlimited patience. Yahoo remains last decade’s news. Microsoft probably has a new CEO, one with zero connection to Nokia. Oh, and they now make better commercials than Apple.

Anything else?

What we learned from last week’s machinations is that everything we think we know about the smartphone wars is completely, utterly false — or  worse, meaningless. Barely a fortnight ago, on this very site, I told you: “The smartphone wars are not over.” Nothing has been settled, least not the future. After last week’s fun-bumpy-tweet-filled ride, does anyone still dispute this?

Know this: The current market for smartphones, and all they are subsuming, transforming, re-making, inspiring — which is in fact all of the things — is itself under threat, betrayed by its own relentless innovation and rapid success. Yet, far too many analysts and bloggers stubbornly cling to the fiction that somehow, smartphones can alter every market they touch while continuing on a merry upward slope unscathed by their own destructive deeds.

The most basic assumptions about this market are nothing more than faith-based analyst alchemy.

Time now to kill the dominant fictions in the smartphone wars.

The Death of iPhone

Fiction: Apple owns the high-end of the smartphone market.   

If you are making assumptions re iPhone (or Android) sales growth based on an imaginary perceived share of a market that is already on the cusp of disrupting itself, then you are making faith-based decisions. It’s that simple.

As I wrote months before last week’s earnings announcement, if Steve Jobs was alive he would never approve the iPhone 5c. The 5c is a rare self-inflicted wound, the elevation of profits over values. Only, that is not the cause of Apple’s weakness in their iPhone business. The trouble is the smartphone market itself, which I am beginning to suspect does not actually exist. Bear with me.

The persistent belief among analysts that  as much as 90% of the current mobile phone market (nearly 5 billion users) will transition to smartphones is a religious ideal, nothing more. Repeat after me: There is no total addressable market (TAM) for smartphones. The very concept is a fiction. Indeed, we may already be within months of Peak iPhone, a year or two from Peak Smartphone. For billions of people, voice, robust SMS/MMS services, and perhaps some form of digital identity is more than they will ever need. What can Apple provide them? Even at, say, $300, nearly everyone on this planet cannot afford and will never need an iPhone.

It gets worse.

I carry my smartphone with me all the time and use it for far more than I can list here. For the majority of that time, however, I don’t actually need a “smartphone”. What I really need is something like a credit card-sized piece of glass that supports rare but necessary voice calling, possibly video calling, can display a virtual keyboard for texting, and includes a mag-stripe (and/or chip) for payments. Create this and the smartphone market is gone, reduced to the equivalent of the dusty home desktop PC. Given the rapidity of innovation in this market, I should reasonably expect to have my (truly) smart card by no later than mid 2016. No iPhone necessary — in barely two years.

Tim Cook must know this. This is likely one reason why Apple stockpiles so much cash. When you’re dependent upon a single product line, iPhone, for about 60% of your revenue, and that market may vanish in a few years, then your focus necessarily shifts to maximizing profits of that product line and funneling those profits into entirely new offerings.

Apple doesn’t release many new products. I suspect that is about to change in a very big way. Expect to see several new products and product lines from the company over the next year alone. Some designed for nothing more than padding iPhone margins. Others, desperately in search of that next big thing.

The Death of Android

Fiction: Android is unassailable

Google cut itself free from the anchor that was Motorola. They strong-armed Samsung into more closely following the sanctioned Google Android playbook. Wise moves.

I sense fear.

Yes, Android dominates smartphone market share. Look closer. What many call ‘Google-free’ Android, AOSP, now garners a solid second place — and is growing at a rate much faster than ‘real’ Android.

smartphone OS

AOSP is the “open-source software stack for a wide array of mobile devices with different form factors.” It can power Amazon’s Kindle line, or smartphones made for use in China, for example, where Google search, map, Play and other services are not terribly popular and not welcome by the government.

Does this matter?

Absolutely. Google no doubt believes that AOSP is a necessary sacrifice. It’s availability ensures the rapid spread of the  “Android” template and prevents iPhone or Windows Phone, for example, from garnering another new user. It seeds the future for ‘real’ Android — and it is hoped, heavy usage of those most profitable Google services. Except, this is false.

The fact is, the rapid, global embrace of smartphones has altered the entire value proposition of web search and web services — Google’s bread and butter. AOSP may presently be little more than Android without the Google, but it could ultimately become a fully-fledged ecosystem alternative in its own right, one that directly competes against Google on everything that matters to them, and not just in China, but in Japan, South Korea, Brazil, USA, everywhere.

Thus, while I suspect last week’s moves by Google signal the company’s preparations to launch an assault on the Chinese market, it may already be too late. The world’s biggest market for data and smartphones can do just fine without Google. Which means: everyone can.

It gets worse.

Extremely popular mobile services may now have a vested interest in supporting AOSP’s growth. Popular social messaging apps such as Line, WeChat or WhatsApp no doubt noticed that Google made its Hangouts service the default messaging app for Android Kitkat. They won’t sit still for such bullying. What’s to stop them from integrating their service and AOSP and offering a low-end smartphone in the developing world?

In the short-term, perhaps none of this happens. In fact, I expect Google to best Apple as the world’s most valuable tech company, possibly within a few weeks. Save the celebrations. Google’s value arises strictly from it’s ability to capture more of our habits, more of our actions, and monetize them across a near-endless supply of strangers and brands. What we are learning, however, is that despite the rapid spread of Android in all its forms, there are effective alternatives to Google services across every smartphone platform — even its own. Little wonder, then, that Google is moving quickly into moonshots, driverless cars, the connected home, consumer hardware, health and more. Such moves are driven by fear, even if they are shrouded in boilerplate Silicon Valley boasting.

The Rebirth of Facebook

Fiction: Unbundling Will Kill Facebook

Like that persistent meme that teens are abandoning Facebook, the idea that Facebook is being unbundled to death — via messaging apps, social picture apps, Christian dating sites and the like — is simply false. Facebook is benefitting from the unbundling trend.

In fact, after badly stumbling on mobile, after the laughable dung heap that was Facebook Home, the brief marriage to HTML5, and the spats with Apple and Google, Facebook is doing better than ever. More than half its revenues now comes via mobile — no smartphone OS necessary.

This is in large part because the company is embracing the unbundling strategy, shrewdly leveraging its billion users and their extant Facebook identity and eagerness to share everything. That some people want to share only some aspects of their lives with only some others at some times and places, via text or image or video, is fine — every 1 and every 0 feeds the growing Facebook engine.

Let a thousand apps bloom. Facebook will be there.

Barely a year ago, analysts were convinced Facebook was doomed given its utter dependence upon iOS and Android. Now, a case can be made that smartphones, once thought as the device to bring the developing world into the global sphere of the Internet, is already on the cusp of being disrupted. In this new world, it is Facebook (and our Facebook ID) that will connect us all to one another.

The Dogs of War

What I think last week’s official numbers and clever machinations reveal is that the “smartphone” market, which most still believe is a pitched battle between iOS profit share and Android market share, is, in fact, merely the initial wave in a coming tsunami, one that will deliver highly personal, nearly ubiquitous and ever-engaging computing and connectivity to all who want it and nearly all who do not, and in forms we have yet to imagine. Hardware profits and OS marketshare, be damned.

The smartphone itself may be no more than a fleeting, ten-year-blip in computing history. There will be no 30th anniversary for the iPhone. Android will betray its maker. Owning your own smartphone ecosystem does not matter. Everything is in flux. My verse is the destruction of everything — and the great tech companies of our day happily, foolishly oblige.

As Jim Morrison said, “no one here gets out alive.”

Truth And Lies Of Silicon Valley

It’s a privilege to write here, and a joy to focus on the long-term trends in technology, the rise and fall of companies and leaders, and the impact this region has upon not only America, but the entire world. I suspect Silicon Valley’s output will come to equal the impact of Detroit, my hometown, which effectively created the middle class, ensured the Allied victory in World War 2, and fundamentally altered how and where people live.

Silicon Valley is also a region that rivals Hollywood and Washington for talking about itself. It frequently displays the worst elements of both pack mentality and herd mentality, and aggressively covers up its failings, including a truly dismaying inequality in wealth and an almost gleeful ageism, all while insisting it knows best for California, the United States, for industry, for government, and for the world.

I now live here. These are my personal, unvarnished observations on Silicon Valley.

Almost all of the work in tech is done by companies and by people which tech bloggers pay scant attention to or worse, openly mock.

Patent lawsuits have about the best margins of any product or service in Silicon Valley. Consider that Apple recently won $290 million in a suit against Samsung. All told, Steve Jobs’ thermonuclear war has resulted in nearly a billion dollars in jury awards. If Apple only ultimately collects less than a third, $300 million, for example, that’s still about a 10X or greater return, no matter how they account for legal fees.

Does Coca Cola even make 10X on its syrup?

Computing is the new oil. The Silicon Valley “ecosystem” integrates smart people, start-ups, venture capital, and a cozy relationship between universities and for-profit corporations, has them all working at light speed and with almost zero consideration of the long-term or the existing order of things. It absolutely can be replicated in many parts of the world. This comes with a caveat, however. This area has optimized on this proven model while focused almost exclusively on computing (hardware, software, standards, apps, data, cloud, social media). Unless the copycats focus their efforts on computing-related activities, their returns will never be like what we have here. Note the very limited impact of Silicon Valley’s biotech efforts thirty years in.

Never, ever believe anyone that says Silicon Valley and Washington, DC do not mix. Washington, DC has the power, Silicon Valley has the money. The courtship is in full swing, and it’s far more than simply Washington leaders searching for big campaign contributions and re-election algorithms. Consider that under President Obama, the annual deficit alone is larger than the total value of Apple, the Valley’s biggest, richest company. Follow the money. Silicon Valley and Washington are the new Wall Street and Washington.

I always assume that any start-up whose value is based upon artificial limits is doomed. For example, Snapchat. The company is optimized for mobile, social media and the visual web. That’s almost a can’t miss. Yet, it is riding atop a temporal distortion, a gimmick whereby owners of digital content and services create artificial limits. In Snapchat’s case, the artificial limit is time (e.g. your picture or ad will vanish in 5,4,3,2,1). We all know this is not true. You may remember the briefly popular, and much-blogged-about Mailbox app, which created a sign-up list, despite the near-infinite scalability of such digital services. It may pay off in the short-term, but if you can’t cash out in the short-term, I suspect you will get burned.

There are real limits and there are made-up limits. If the limit is made-up, I don’t invest.

Speaking of investing, anyone using Snapchat for (illegal) insider trading may wish to re-consider their actions.

Almost everything you do online, and almost every time you carry your smartphone with you outside, is a far greater security risk than leaving your home WiFI open. Stop refusing to share. Stop handing over all your private data so easily.

Most people I meet here are very smart and work very hard. This is critical to their success — and to the region. Bonus: most that I meet are good people.

I have been around the world and all about this great country. Nowhere in the US is there a more socially inclusive environment than Silicon Valley — nor a more politically intolerant one. You will be branded if you are a Republican, a conservative.  Just so you know.

Connections matter above all else. Except, brainpower. If your brainpower sits atop the 0.1%, you will do exceedingly well. If  at the 1%, you will still do great. Nonetheless, and though I can’t say how many people at Apple have actual “humanities” degrees, I can assure you that you better have an engineering degree, science degree, and/or economics degree if you want a good job. It’s not about humanities or the social sciences out here.

Too many here are focused on creating the future or disrupting the current order, and not at all on preserving what is best. This is too bad. Think of all the great stuff we’ve been able to re-capture almost without trying. For example, thanks to iPhone, Yelp and Foursquare, I never again have to eat at fast food joints or franchise restaurants. Now, no matter where I am, I can find a great, local, mom-and-pop eatery. Similarly, classical music in the US, effectively dead on radio, is now readily available, for free, on Pandora and iTunes. I suspect the region is missing a giant opportunity is overlooking things to preserve.

We spend more on apps than on software.

I know of no one here who spends more on television than on connectivity. Internet, WiFi, smartphone and tablet connectivity wildly crush cable television, DVD rentals and the like. And yet, the new cool is to tell the world you’re going to stop reading email, stop tweeting, maybe go off-grid for a week or two. In my experience, no one who tells you this is ever telling you the truth. To be disconnected in Silicon Valley, even for a moment, is to be without air.

In physical space, absolutely no one ever mocks anyone for their choice in smartphone or computer.

Perhaps because there are so many smart, competitive, reasonably well-off people here, but attractiveness and fitness command a premium.

The rest of the world will know soon enough: the best source for breaking news is Twitter. The best links to the best analysis of current events is via Twitter.

In Silicon Valley, the cloud is your real hard drive and your physical hard drive is just a backup, likely to crash.

The last thing we see at night and the first thing we see in the morning is our smartphone.

We get our music recommendations come from iTunes and YouTube.

Design is hard. Really hard. BMW has been making cars for about 100 years. The new 750i is ugly. If BMW still can’t get car design exactly right, 100 years on, it’s probably no wonder that so much hardware, so much software, so many apps, nearly every UI design is so poor. Still, bad design is an obvious failing, with Silicon Valley a leader.

In my time here, I’ve witnessed radically more communications failures and personal angst based on people with obviously different Myers-Briggs assessments than on whether the person was black or white, male or female, for example.

There are so many people out here, so many cars, so little space. Yet barring a literal seismic catastrophe, I believe this area is on a growth trajectory that will continue for at least another generation or two.

Facebook’s Conundrum

I used to be very bearish on Facebook. I’d say I’m more skeptically neutral now. Each quarter Facebook has posted significant growth in terms of monthly active users. Yet when we talk to consumers, particularly younger ones primarily in the US, we kept hearing of declining usage. Patrick wrote a great article earlier this year called Facebook is for old people based off things he was hearing from his kids and their friends.

For some time we had been hearing the same with the younger demographic. We did find some interesting related data that even many consumers of all ages who had been on Facebook more than three years noted a decline in their daily usage. So Facebook’s own admission that teen usage on their service is declining came of no surprise.

Before I dive into what I think the conundrum is let’s take a look at their growth as a user base at large then also the growth of mobile users on Facebook.

Screen Shot 2013-10-31 at 3.30.13 PM

The key to this chart is the growth of mobile active users which is now nearly every active user on Facebook. My hypothesis all along for the steady growth of Facebook’s quarterly increase of monthly active users was that emerging markets were coming online and joining the Facebook revolution. We know that many emerging regions have helped spike the adoption of smartphones very sharply over the past 12-18 months. In these regions many of these consumers do not own PCs so their smartphone was their sole portal to the Internet. In fact it is possible that Facebook itself was one of the primary driving factors for many consumers in these regions to get smartphones in the first place, buy a data plan, and connect with the broader world.

Benedict Evans eloquently stated this in a recent tweet:

iPhone is a tool to sell data plans in the USA. Facebook and Whatsapp are tools to sell data plans in emerging markets

This statement hits the nail on the head as to the growth and sustained active users for Facebook. Interestingly the same is true of Whatsapp which is adding about 50m new registered users per quarter. Another is LINE which has added 100 million active users since January of 2013 and is now currently at 280m users. As the world comes online via their mobile devices they are looking to discover and connect. But what happens three years from now when they are mature users. My suspicion is that these types services which acquire users quickly can also lose them just as quickly.

All of these companies are mobile first companies. Facebook used to be a PC social network and now they are a mobile company first and foremost. This is evidenced by their continual growth of mobile ad revenue. It is truly a mobile world.

Facebook’s Conundrum

Plain and simple, Facebook’s challenge is engagement. Early Facebook users find the joy of discovery and connecting with friends, family, those they lost touch with, etc., as a very sticky experience. Facebook’s on-boarding(initial sign-up and discovery of the service) experience is quite quick and clean because fairly quickly you can start connecting with schools, alumni, friends, family, etc. Within a few hours there is a wealth of active social data available to you.

But overtime, that discovery fades and Facebook becomes more about maintaining than connecting. Checking in and the occasional sharing rather than discovery. The challenge for Facebook is to continue to evolve the service to encourage and maintain engagement even after it moves from the discovery phase. [pullquote]Facebook would be a great service if you un-friended 90% of your friends[/pullquote]

One theory I have is that so many of us grew our friends list so big that the amount of noise vs. genuinely interesting things becomes so overwhelming that stop engaging heavily due to that noise. Someone once told me that Facebook would be a great service if you un-friended 90% of your friends. This is a fantastic point but also one that would come with a cost. The value of having a large network is that the timeline is fresh. The problem with that, to my earlier point, is that most of that is noise..but it is fresh noise! If we were to unfriend most our friends except the ones we are truly close to, the content would most likely be more relevant but it would also not be as frequent. So by nature Facebook would be better, but it may not make it that much more engaging.

Contrast this with Twitter. Twitter is my favorite and easily my most time consumer app of my day. I may actually be on Twitter more than any app including email. Twitter has the opposite problem of Facebook in that the on-boarding is an issue. You sign up for Twitter and it takes a significantly longer amount of time to find relevant folks to follow. And Twitter, unlike Facebook, gets better the more content sources you follow. Once you have curated your own network of hand selected interesting content sources, you find your timeline stays fresh and stays relevant. This is why I spend so much time on Twitter. I have hand selected content sources that I find relevant and interesting. I follow 793 sources and the quality of my timeline is so relevant that I do what I can to not miss any tweets by playing catchup throughout the day. With Twitter taking the time to invest in volume sources makes it better. With Facebook taking the time with volume sources arguably makes it worse.

Twitter may or may not reach mass market status. For me and what I do it is an invaluable resource, network, and communication tool. Facebook is clearly a mass market product but they have a challenge. They may or may not figure this engagement problem out. Perhaps they don’t need to. So long as they continue to find relevant ways to deliver engaging advertising on mobile devices and continue to run a healthy business they should be fine. But they are now a public company and investors are relentless about growth. Engagement is one of the keys to Facebooks growth metrics that investors care about. That is why I remain skeptical.

The Definitive Answer Guide to Which Smartphone You Should Buy

Forget all the rumors of an Apple iWatch. Ignore the surprisingly good reviews of Google Glass. Neither of these will come close to replacing your smartphone. Not for many, many years; probably never. The question is not whether  you will buy a smartphone – you will. The question is: which smartphone should you buy?

I am here to help. Don’t worry, I promise this will be painless.

I’ve traversed two decades in the telecommunications industry and have spent ridiculous amounts of time over the years testing and sampling various smartphones across just about every single platform, price point and form factor. If it means anything to you, I even own a MeeGo. Looks great, but unfortunately it works about as well as your four-year-old netbook.

Let’s begin.

Dear Brian…

Which smartphone should I buy?

The iPhone 4S.

Perfectly designed, flawless to operate, affordable. Apple offers the best, most robust, most pleasing ecosystem of apps, games, content, payments, customer support, product integration and accessories. I cannot say exactly how many billions Microsoft, Google and others have spent over the years attempting to equal the iPhone’s operating system – iOS – but I can say that none have yet met the challenge.

Apple’s iPhone repeatedly tops the competition in customer satisfaction ratings. iPhone users are much more likely to stick with iPhone compared to Android users. That should tell you all you need to know.

Done! That was easy.

What? You have more questions? My singular advice simply not enough? Fine. What else?

Why not iPhone 5?

There is a reason why the iPhone 4S continues to sell so well around the globe: on form and function, ecosystem and compatibility, the 4S offers the best bang for the buck of any smartphone on the market, bar none.

Yes, the iPhone 5 is a great device. It has superior hardware specs to the 4S. In my opinion, however, it feels too delicate. It’s design is not perfect. iPhone 5 is too long and narrow. For many people, particularly women, they can’t control the entire screen with a single swipe of the thumb.

iPhone 5

I hate Apple!

No, you do not. Besides, Apple, just like Nokia, Google, Samsung et al is a giant, for-profit corporation unaware of your existence. This is not about them, this is about you – and the best smartphone for you. Get the iPhone 4S.

Don’t care. I refuse to buy an iPhone!

Fine. Buy an HTC One, it’s a good phone.

You’re saying the HTC One is better than the Samsung Galaxy S4?

No. I think the S4 is slightly better. But if you buy the S4 all your friends will think you did so only because of all those Samsung commercials.

Not a Droid or LG?

No.

Shouldn’t I just wait for the latest model?

I cannot recommend that which does not exist.

I read that Android has surpassed iPhone. True?

After years of slavishly copying iPhone, the Android UI inexplicably remains almost willfully confusing. This is compounded by the greed and short-sightedness of carriers and handset makers. However, Google nearly makes up for this with great search, maps, Google Now notifications and other services optimized for Android. Plus, many handset makers like Samsung put amazing hardware into their devices. If you simply cannot bring yourself to get iPhone, an Android is a suitable alternative.

What about all the “phablets” I keep hearing about? Should I get one of those?

No.

But…

Do not be swayed by that big screen – even if you can hold the device in one hand comfortably.  Smartphones are not televisions. You take your smartphone with you everywhere. You use it constantly. A phablet is almost certainly not right for you. Form is a primal factor in choosing the right smartphone and the phablet form is an evolutionary dead-end. The one thing it does well – offer a very large display – simply cannot overcome all that it does bad. Phablets are too big, too wide, too heavy and not optimized for the role they attempt to fill: a multi-purpose, always-on, fully mobile personal computer.

I’m going to buy a phablet anyway. I like the big screen.

If you insist, then I recommend you get the new Samsung Galaxy Note II. You will regret this.

You obviously hate Windows Phone.

How Nokia could have blown through two plus years of development and delivered only the Lumia 920 and the 928 (soon), is beyond my comprehension. Windows Phone deserves a far better flagship device.

But I do not hate Windows Phone – the operating system. It’s a beautiful, reasonably intuitive, highly customizable UI that delivers real-time updates probably better than any other platform. The problem, though, is that Microsoft simply made the wrong UI choice. I suspect they will never recover from it. Singular, static apps really do work better for smartphones – as iPhone has proven repeatedly – than the “live tiles” format that Windows Phone adopted.

My daughter loves Facebook. Should I get her one of those HTC Facebook Phones?

No.

But she really loves Facebook.

Get her any other (non-Windows Phone) phone listed here. I promise you, she will be fine.

I think you’re wrong about the iPhone 5.

The iPhone 5 was a very clever attempt by Apple to build a device with a larger display – as the market demanded – while maintaining all the benefits of their app ecosystem. Apple can and will do better.

I cannot afford any of these devices.

Whatever smartphone you choose, assume you will have it for between 1-3 years. The cost of the device itself will almost certainly be less than the cost for voice, data and texting services. Plus, you will buy apps, music and other content, and accessories – such as a car charger, stereo speaker and case – for your smartphone. Factor all of these costs into your decision.

If you still decide to go with a low-priced device, get last year’s top-of-the-line Samsung: the Galaxy S III. If you can get a refurbished model, this is a truly great buy. If you cannot afford this, I would encourage you to not buy a smartphone at all. Get a quality feature phone with a physical QWERTY keyboard. There are many options available.

My company doesn’t allow me to use iPhone or Android.

Delta doesn’t allow me to have my smartphone running during take-off. That’s never stopped me.

I can’t possibly type on that touchscreen. I need a real keyboard.

You will learn.

I refuse.

Then, wait. Very soon you can have a BlackBerry Q10. I think you will be impressed. (Note: do not get the BlackBerry Z10)

Blackberry_Q10

Which carrier should I go with?

That I cannot help you with. They all have their own unique set of faults.

Why Maps are “Really” Important to Apple

In my last Apple Maps column I discussed why Apple would have delivered a suboptimal maps experience. This analysis was really a short term view of why they would do this, and the answer was Wall Street. Net-net, Apple would have felt the Wall Street wrath more than they are already feeling post-iPhone 5 launch had they delayed their launch for a quality product. Now, I’d like to look at the long term value of “maps” and why this could be so important to Apple. The answer is simple, it’s to monetize a huge portion of the internet they aren’t getting a piece of today.

Maps are for More than Getting from Point A to B
For most general consumers, “maps”, if they are even aware of the smartphone functionality, means getting help from getting from point A to point B. My son’s pee wee football coach even places a Google maps link to each away game that provides directions on the smartphone. Even if someone isn’t aware that phone maps exist, all they need to do is click on that link and they will get directions to the game.

For more advanced consumers, “maps” help them find brands or categories of products near them to get phone numbers or driving directions. Want to see how late that Jiffy Lube near your house is open on a Sunday? Search for it and it should have that info of it’s in the database. Looking for some coffee and you don’t care about the brand? Search for “coffee” inside of maps and be directed to the closest place.

With an Android device and Google Now, users can easily check in via Google+ once they arrive at a destination. If you’re searching on Yelp or checking in on FourSquare on any phone, you may even me able to find discounts on your visit.

You see, “maps” are more than about just mapping, they are a portal to the future of local advertising, commerce and payments. You need to teleport yourself five years into the future to get the best idea of just how valuable this is. This is about big money, money that dwarfs what Apple lost in market cap over the past few weeks. Let’s peel back the onion a bit.

Local Advertising, Checkin and Deals
Advertising as a business is larger than movies, games and music combined. Most of those ad dollars get spent locally by the billions of small businesses across the globe and the large businesses trying to reach local consumers. Getting a cut of this would be huge and is no surprise that Google, Groupon, Yelp and Facebook are all going after this full force.

Today and even more in the future, every place we go will be tracked and most consumers allow it. In fact, in the future, telcos will provide subsidies to consumers who let them be tracked and be anonymously “checked-in”. In-context deals will be provided to these users that actually provide value, not the horrible deals most users get today from Groupon and Google. The problem with Groupon offers is that they don’t have good enough profiling or enough deals in inventory to tee up enough relevant deals. The same thing for Google and even Facebook.

Knowing where people are and what they are doing is crucial to building these profiles and for delivering the ultimate in ads, the “pick-off”. The “pick-off” is when an advertiser knows you are going somewhere and will provide you an ad to go somewhere else. Let’s say you search for “pizza” and get directed to “Joe’s Pizza” on 5th and Lamar. “Luigi’s Pizza” is on 7th and Lamar, and through their real-time ad network knows this and sends you an immediate $10 off coupon message if you spend $30, and a window seat for the best people watching. You accept, and you, Luigi and the ad network benefits. OK, so this may be a bit exaggerated but you get the idea.

So who could Apple impact with this? Google, Groupon, Yelp and Facebook. That’s big. This isn’t the only opportunity. How about commerce and payments?

Local Commerce and Payments
Now that Apple and their network knows you have arrived at Luigi’s, the coupon will show up in your Passbook and you are ready to roll. You show up at the front door, show the coupon, and you and your friends are seated at the best seat in the house, right in the front window. The party tweets about what good seats they have and check in on Apple’s Maps.

What about when it’s time to pay? Apple, because they are tied into Luigi’s, has a deal that everyone who uses “Passbook Wallet” gets 1% cash back. Apple has a frequent flyer kind of program where they get freebies toward content and devices. So you are motivated to pay with your “Passbook Wallet”. Upon checkout, the waiter scans your phone’s bar code with their smartphone camera, similar to a Starbucks checkout, and you are off to the next big party.

What companies does this disrupt? It effects a ton of people including Isis, Google (Wallet), VISA, Mastercard, and American Express. Can you even imagine how much profit this could be for Apple?

Maps Drive Big, Long Term Apple Opportunities
As I outlined in my previous analysis, Apple delivered a suboptimal mapping experience to limit the punishment they would have received from Wall Street had they delayed iPhone 5 or iOS 6. Long term, though, the stakes are outrageously high and involve Apple monetizing an enormous profit pool, local advertising and payments. Apple need maps, and evolved maps, to make that a reality and they are well on their way to do this.

Why Google Should Fear Facebook

I have written quite a bit about my doubts of Facebook’s long term value. And amidst all the recent news about their IPO woes it seems like investors are skeptical as well. Last week I wrote an article highlighting my thoughts on why I am skeptical about Facebook’s long term value. Today I would like to explore a scenario that is the flip side of the argument I laid out last week. In this scenario Google should be very worried about Facebook–if they are not already.

Maybe this is weird but I have debates in my head where I argue many sides of a point or hypothesis while I am building my analysis. Even though I may have a conviction that a scenario goes a certain way, I believe it is important to examine all sides. My overall skepticism with Facebook’s business model, and value, is based on the assumption that their advertising business model and other potential revenue streams is limited to Facebook–their only asset to date.

There is no question that Facebook is gathering a database of extremely detailed profiles of Facebook users. The assumption has been that they would use that detailed user profile to match advertisers up with the right consumers as those folks use the Facebook service. As I pointed out last week, the reason consumers use the Facebook service is different from other services or content they consume where advertising actually works. Advertising works well when the ads are related to the content being consumed. With that in mind, if Facebook was to create an advertising network similar to what Google does with AdSense they could potentially take a big chunk of Google’s business.

One Ad Network to Rule Them All

Google has built their ad network by linking advertising up with related searches. This makes a great deal of sense and works quite well. Google uses services like Gmail, Android, Picassa, etc., to try and gain more information about people so they can sell more targeted ads. However for Google to come even close to knowing intimate details about me and my life, I would need to use all of their services. Something that it is not common for many consumers. However for Facebook to know all the intimate details of me and my life, I only need to use Facebook. Therefore, Google basis most of its targeted advertising value by knowing what was searched but Facebook can base its targeted advertising by knowing more about the searcher.

If Facebook created a service like Google’s AdSense they could extend their extremely targeted advertising strategy beyond the walls of Facebook. Given that many websites which require you to log in to sign up for a service, give consumers the option of logging in with Facebook, there are a myriad of ways Facebook can leverage their consumer profiles with all their online partners.

Extending value to advertisers and brands beyond the walls of Facebook is key to Facebook’s value in my opinion. This model could be completely disruptive to not only Google but the vast majority of advertising networks.

The Broader Opportunity

Even if Facebook employed this strategy, displacing something like AdSense is no easy task yet the upside is significant in my opinion. On Monday, Tim explored whether Facebook’s best days are over or ahead. He pointed out that the trend of vertical social networks is one we are watching quite closely. Whether it is publishing sites or communities based around specific interests, we believe those are the places where targeted advertising can thrive and return value. Facebook either needs to figure out who to create these niche communities within the walls of Facebook or do what I propose and give those sites access to their ad network.

What makes this strategy so interesting is that if it were done right, Facebook as a service could exist solely to collect key data needed for advertisers. If Facebook could have success building an ad network and monetizing it primarily with partners then potentially Facebook itself could be advertising free. Ads on Facebook right now clutter and detract from the experience which brings me there in the first place ( I also believe they are useless in their current form). I truly believe that if Facebook is reserved to only make money within the walls of Facebook, that they will make compromises that will seriously detract from the Facebook experience and drive consumers away. However, if they can make money outside the walls of Facebook then they have a chance of creating better experiences and keeping loyal Facebook communities.

Lastly, the broader opportunity becomes even more interesting as we think about mobile and emerging platforms like the television. My point that Facebook may very well know more about me than any other company pitching advertisers becomes interesting with mobile advertising and even my future experiences with TV. If TV networks can partner with Facebook for example they could begin to deliver some of the most valuable advertising in the form of rich media due to the amount of information they know about me. Which if you think about what ads I see today on TV, in print, online, etc., it becomes clear very little is known about me.

Facebook, in my opinion, is the only company today who is in a position to completely change the advertising realm across a range of mediums. However, it depends on them thinking bigger than themselves and the destination they built.

Are Facebook’s Best Days Over or Ahead?

With Facebook’s public offering over, its time to ask the question of whether Facebook’s best days are over or are there any other scenarios that could boost their earning potential and actually let them grow revenue. To date, they have mostly used ads and special partnerships to monetize their connections to 900 million people around the world and that has allowed them to earn serious money in the process.

My friend Michael Miller wrote a great piece at PC Mag entitled “Facebook’s not so secret weapon-Infrastructure” and explains how Facebook’s servers are based on the Open Compute project for efficient data centers. At its core, Facebook has one of the best and most responsive data centers available that can be quickly customized and optimized for new products and services, which I consider a major asset and one that could be much more proactive in delivering new products and services in real time.

We already know that Facebook is a place for making connections with friends and family and in a broader sense, lets us connect to companies, products and services as well. But I think there are at least three other major products and services they could offer that could extend their growth substantially and enhance their revenue potential.

The first would be to follow an important trend in social networking called vertical networks, or linking people of like minds together and make it easier to connect with people vertically within Facebook. To a degree they have that now with Facebook groups but it is not designed to really target vertical markets. Our research is showing that there is a real demand for dedicated vertical social networks tied specifically to interests. For example, a social networking site truly optimized for pilots. Facebook does have a group called “Pilot Connect Social Network” within Facebook but it is poorly laid out and somewhat difficult to follow. But what if they really took aim at hundreds of like-minded subjects and created a very rich social network that is elegantly designed and easy to make connections. This would allow them to provide even more targeted ads, and because it would be part of Facebook as a whole, it could also cross reference any topic or ad that might be relevant to this audience such as hotels near small airports, etc.

I love scuba diving and there are many sites about scuba diving, but no single social network around this subject that really appeals to me. But what if Facebook gave me dedicated scuba diving group or scuba network that is very rich in content and well designed that I really want to go to every day to see what’s new. I buy scuba diving magazines to read about diving resorts and get tips, but I also love the ads in there that are really aimed at me. This includes ads about new equipment, diving resorts, etc. At the moment, Facebook does not really provide a rich network for like minds and if done right, this could be a major growth opportunity for them.

The second thing I think they could do that could really enhance their long-term growth is to become the social network for applications. Mark Zuckerberg has alluded to this but the basic idea would to become the social link between existing apps and multiple users. A good example of this is in multi-player games. Most games today are designed for single user play. But what if any game I have could be played with my friends across town or around the world. Or what if I have an app like a photo sharing app? If Facebook could be the social link between different photo apps, it could be used to do innovative things that blend images and video into a multi-app, multi-user environment. Or what if Facebook becomes the social networking glue between existing sites for diabetics? While they could create a richer internal Facebook network for diabetics, if they were also the social link between dozens of other diabetic sites, the content for the diabetic consumer becomes even richer.

But the third area that they could mine is through extending their ad network beyond the walls of Facebook. Facebook is building a detailed user profile of each Facebook user. One of the more interesting things Facebook could do is to extend that demographic profile to build an advertising network similar to Google AdSense. If they could partner with other top tier sites and extend their demographic database and targeted ad-matching network to other websites outside of the Facebook experience, they could seriously threaten Google’s dominance in this area. Google only knows what people are searching for whereas Facebook knows quite a bit about the searcher. The latter is much more valuable in matching the right ads with the right user and Facebook may be one of the only companies out there currently who can deliver this across the web.

While Facebook already has a rich framework to use to continue to connect people together around their social network, it is clear to me that they still have a lot of room to grow and expand and monetize new services. I don’t believe that Facebook’s best days are over. Indeed, I think that they have climbed some pretty big mountains to get where they are today, but I suspect that they have even more mountains to climb and could use what they already have to build on and continue to grow the company significantly in the future. The key word for this growth will be to continue to innovate and execute and I believe if they do the things mentioned above, along with others I am sure they have in the works, the company could become even more powerful and profitable in the future.

3 Columns Skeptical of Facebook’s Long Term Value

In light of Facebook IPO day, I thought I would share three key columns I wrote about Facebook. I remain skeptical of Facebook’s long term value. Specifically the business model and sustainable value to those they depend on to make money. Facebook, like Google, is a company where people are the product. The big difference in my mind between those two companies is that Google has quite a bit of proprietary IP around solving a problem–search. Facebook may have some enabling technology, may or may not actually be a sustainable social platform, but is the problem they are solving one that is defendable?

If the answer is yes then how do we explain the massive migration from MySpace to Facebook? Yes Myspace did not innovate and did not develop solutions that cater to a larger demographic. Facebook did a great job expanding their value from college students only to a wider audience. That being said what is stopping someone from coming up with a better idea, or a better way to stay in touch, than what Facebook has? Is the problem they are solving really that hard to solve?

The first column I wrote almost a year ago for TIME looks at this subject of whether Facebook can go the way of Myspace. I encourage you to read it as the first of the three columns I wrote. It will give you a timeline of my thoughts, how they evolved, and the overall case I make against the long-term value of Facebook.

Could What Happened to Myspace Happen to Facebook?

I decided to revisit this topic just earlier this year, again for TIME, where I explore if Facebook has peaked and we are now witnessing the beginning of the end. This particular article is by and large the most read piece of content I have ever written. It could picked up by other major outlets like CNN, the AP, and a few others. And if you take a look at the comments you can see how heated the debate gets. My overall point was that if you look at users of Facebook who have been on the service for a length of time they tend to see their usage decrease. We can call this Facebook fatigue but the initial thrill of discovery weans and the service becomes more management than discovery. Discovery, in my opinion, is one of the stickiest psychological aspects of any online service. Think about why you spend time browsing in a mall, or electronics story, or Amazon, or an App store? It is largely due to the thrill of discovery or the hopes to find something new of value.

This is the same experience for a new Facebook user. It is the thrill of connecting with old friends, colleagues, or classmates that engaged us in the beginning with Facebook. Seeing what loved ones from a far are up to, finding new friends or interests. But then there comes a point where that initial thrill of discovery weans and the service can become overloaded with information you don’t care about or are not as interested in any longer. Things like this are the root of my concern of Facebook over the long haul.

Is This The Beginning of the End for Facebook?

My most recent column, which we ran here on Tech.pinions, was on why I wouldn’t invest in Facebook. My overall reasoning is built upon my above two points and columns. That if consumers, the longer they use the services, are not as engaged with Facebook then the value to an advertiser goes down.

Recently news surfaced that GM was stopping advertising on Facebook due to the ads not paying off or delivering the ROI they expected. This was predictable and not surprising based on the arguments I have offered. When you think about why ads work on TV, print, and other forms of offline media, it is because the audience is either engaged and captive, or highly segmented, or both. Think about why ads work in Men’s Fitness for example, a service I subscribe to. I am interested in fitness, exercise, etc., and nearly 90% of the ads I see in this magazine are relevant to the subject matter of the captive audience. The same is true with TV shows and a range of other mediums where advertising has been historically successful.

In all of those mediums where advertising pays off, there is a captive audience, engaged with content directly related to the theme of the ads. This is not true of Facebook. If the content I am engaged with is that of friends and family then how exactly do advertisers match their content up with me in a relevant way? Facebook has to hope that I share my interests, likes, dis-likes, etc., in order to get a detailed information about me as possible in order to help link advertisers up with me based on my interest. The only problem is that the thematic content related to sports, fitness, hobbies, interests, etc., is not the reason I go back to Facebook. It is simply to stay in touch with friends and family.

The psychology of what has made ads useful in other targeted content mediums does not translate to Facebook. It is because of that point that I struggle with Facebook’s business model.

Why I wouldn’t invest in Facebook

In the column above I point out why I think more vertical social networks, ones that cater their content, services, and engagement around specific things, have more of a chance at being successful. Social networks for car lovers, food lovers, fashion fanatics, fitness, health, mothers of kids of all ages, etc., provide more valuable content and lead to a more captive and segmented audience. It is in these environments that an online social platform can thrive.

Maybe Facebook will figure out whom to segment its social platform even further in order to drive more engagement around specific subjects. I think this will be very difficult for a general-purpose social network to accomplish but perhaps they will figure it out.

For now I will remain skeptical and observe as more vertical social networks arise and become more valuable to advertisers.

Why Facebook Might Make A Smartphone

There have been a lot of rumors flying around these days that Facebook could be bringing out a smartphone of their own and that HTC is making it for them. Facebook has denied they would do a handset, but rumors and industry buzz around this continues to be strong and usually where there is smoke, there might be a fire.

It seems odd that given the competitive market conditions in smartphones that Facebook would even consider doing a smartphone, which is why some people I talk to dismiss the idea of Facebook even venturing into this crowded market. But I believe there is a scenario that could actually allow them to do something innovative and interesting even with the smart phone market competition at an all time high.

Today, most smartphones are based on a specific OS, whether it is iOS, Android, Blackberry, etc. And while a dedicated OS is important given the need for local apps, there is another way to approach this market, especially on a device that you know will be always connected to a 3 or 4G radio. I think that Facebook is smart enough to not get drawn into the iOS and Android wars and if they do release a smartphone, I believe it will be strictly an HTML phone. I have started to hear some rumblings that this is the approach they will take if they enter the smartphone market and in many ways, this would be a smart and potentially disruptive idea.

With iOS and Android, there are very rich development tools for creating apps and with both of these operating systems; local apps make a lot of sense since these apps can be used on things like the iPod or tablets with no Internet connection. However, anyone who has used apps on connected devices knows that it is the wireless connection that allows most of these apps to really sing and dance. But if the goal of Facebook is to strictly bring out a mobile connection to Facebook and have their smartphone serve as a portable vehicle for them to deliver a whole host of social, commercial, and media related services then HTML would work just fine on a smartphone that always has a connection.

This would mean that the Web browser would be the OS, so-to-speak, and all of the apps would come through this HTML browser. And since it would be always connected, it could deliver some pretty rich applications and services if done right. This is a rather intriguing idea since the operative word here is doing it right. Mobile Web browsers have come a long way in the last five years and are capable of delivering pretty good renditions of Web pages and Web apps even on devices that have localized apps. But if a browser is to serve mainly as the way to get apps as well as Web content then this browser needs to be pretty smart in its own right.

But with this move, Facebook would be really moving into new territory. Besides not having any history as a smart phone vendor, they would have to be dealing with the carriers, something that Palm has shown in the past is quite difficult to do right. And, I would like to think that if the only way to gain access to apps is via the Web, then the data deal I would want on a Facebook smartphone would probably need to be an all-you-can eat plan. A plus is that they don’t need a special SDK for apps and, at least in theory, any HTML app should work fine in mobile mode.

Now I have no clue personally if Facebook is really doing a smartphone even though there are a lot of things pointing to the fact that this may be happening. But I do feel that if they jumped into the smartphone market with an Android device it would just be another me-to smartphone.

On the other hand, taking an HTML approach with a smartphone that is really optimized for Facebook’s social experience and using it to deliver more personalized content, apps, information, and games through Facebook–could be quite interesting. It would allow this phone to have broad access to Web content and apps, and if done elegantly, keep Facebook users in the Facebook ecosystem longer and thus helping their cause of monetizing more apps and services tied directly to their mobile handset.

In a way, Apple already does this with the iPod, iPhone, and iPad in that they are all tied directly to Apple’s ecosystem of apps and services. However, Apple lacks the social connection that Facebook could have with their smartphone. And given the fact that Facebook already has close to a billion users, if they could get this smartphone priced cheap, their handset could be quite disruptive as it could take potential buyers away from Apple, Andrid and Windows mobile phone vendors who are especially coveting new users in emerging markets.

Facebook continues to be quite coy on whether they are doing a handset and their denials could be true. Also it would be a risky move given the current glut of cell phones and smartphones already on the market. But if I were a betting man, I would bet that they have surveyed the market for smartphones and, at the very least, have done some serious R&D around this idea of creating an HTML based smartphone that is tied to the Facebook ecosystem and their social community. And it would not surprise me at all if later this year they actually introduce something like this to capitalize on a growing Facebook community around the world that just might be interested in a Facebook smartphone.

Why I Wouldn’t Invest in Facebook

First let me clarify that due to my line of work I do not invest personal money into any public tech stock. That being said, even if I did, I would not put my own money into Facebook when they go public.

This has been an interesting week for Facebook. They acquired an extremely popular piece of software for iOS and Android called Instragram for roughly $1 billion dollars. Instagram had an extremely loyal, engaged, and opinionated customer base (judging by their harsh reaction to the acquisition). In fact, fellow Tech.pinions columnist Patrick Moorhead wrote in his Tuesday column about the conversation he had, via text message, with his daughter after the deal was announced. If you haven’t read it already I encourage you to read it as she very deliberately called Facebook stupid and for old people, which is in fact the title of his column.

Column: Facebook is For Old People

Along those same lines I wrote a column for TIME in December entitled “The Beginning of the End of Facebook?” This column led to a raging debate in the comment section as some folks disagreed with me and others felt that Facebook may not be the king of social networks forever.

Facebook Becomes Routine

My premise was simple. I interviewed approximately 100 high school students in Silicon Valley, all who have been on Facebook at least two years and many had been on for four years or more. In every case with every interview the results were the same. They found themselves using Facebook less and less and were generally using it to simply get quick updates of friends and family. Since that column (and if you read the comments) I have gathered over 100 more responses all indicating the same thing. Those who have been on Facebook for a significant period of time see their time spent with the service decline.

Yet comScore tells an opposite story. The year over year increase of individuals average monthly minutes on Facebook is increasing at almost 50% each year. Now, comScore is looking at the total number of minutes not the number of minutes an specific individual averages. I am not sure if it is possible to track this but I would be 99% certain that the average number of minutes per month spent on Facebook actually declines the longer you have been on the service.

In my own experience and in many of the high schoolers I spoke with, the first year or so on Facebook was the most intense. Discovering and keeping up with new or old friends. The lure to share socially and show off all the things you are doing, eating, etc. All of it becomes very addicting, but after a while that drive goes away. This is at the heart where I think the problem with Facebook lies. It commands a high average of a persons time for a short while but then Facebook becomes more of a routine rather than a passion.

The numbers that ComScore is observing is because much of the globe is still having its first year on Facebook. There is also no doubt in my mind that even for those for whom Facebook becomes routine go through a season of more intense usage. Like when a friend or loved one goes on a trip or moves to a different location.

However, even with my theory of average time spent declining and the longer a consumer has used the service is correct, it is only one small part of why I wouldn’t put money into Facebook. Ultimately, however, I don’t believe the time spent on Facebook averages we are seeing today is sustainable in the long term.

The Economics of Pleasing Everyone

The problem I see with Facebook’s business in the long term is that it is trying to be all things to all people. Within that vein of thinking it is also trying to develop an advertising / revenue strategy that is also all things to all people. Generally speaking, when a service tries to be all things to all people, it is not actually good for anything.

In 2008 I was on a panel at the OnMedia summit in NY talking about this very thing. I highlighted a few networks of interest at the time. One was called Dogster.com which still exists today and is simply a social network for those passionate about Dogs. It links people up by region or just by type of dog in order to link up people of like minded interest in dogs or even certain types of dogs.

Similarly a few years prior I was spending quite a bit of time with the folks of LaLa.com and its founder Bill Nguyen. As you may know Apple has since acquired LaLa and used its technology to build Ping into iTunes. The premise of LaLa.com was simple in the beginning. Link people together who had similar tastes in music and let them help each other discover new music. The results were as expected as for quite a length of time LaLa.com’s average time on site per customer exceeded two hours per day. The allure in the case of LaLa.com was like minded people and the discovery of new music. Lala’s customer base continued to spend significant time on the service until LaLa changed their strategy.

This is the power of vertical social networks and where I believe the best advertising strategies will lie in the future. In the case of Dogster.com the community is an extremely interested one in all things related to dogs. If I was the head of marketing at Purina, would it make more sense for me to advertise on Facebook or Dogster? Similarly, how about social networks for car lovers / aficionado’s, mothers, fitness fanatics, artist lovers, etc. The total size of one of these vertical networks may not be nearly as big as Facebook’s but the target audience would more engaged, more targeted, and more passionate about the interest and thus more valuable to advertise to in my opinion.

We are already seeing these vertical networks creep up and I assume we will see many more in the future and this reality isat the root of my concern over Facebook’s long term sustainability as a profitable business. My concern is that these vertical social networks will become more valuable to brands and advertisers and command more of their ad spends than does Facebook.

The bottom line is that if I am a brand looking to advertise to a certain type of consumer, I am going to want to go where those consumers are in big numbers. My belief is that brands will find more success marketing with vertical social networks that are oriented around special interests rather than a network like Facebook which is trying to be all things to all people and not doing a good job of it.

Facebook is for Old People

“FACEBOOK IS STUPID AND FOR OLD PEOPLE“, my 12 year old daughter texted me yesterday after FaceBook offered to purchase Instagram. If you have teenage or pre-teen girls or boys, this demonstrative behavior isn’t anything new. What I didn’t fully understand at the time is what a firestorm the acquisition set off in the community. Of deeper and longer-term significance, however, was the spotlight my daughter’s text to me shined upon the newest and most natural trend in social media; verticalization or specialization, which will reshape social media as we know it today.

As I probed to better understand what my daughter meant and how she felt by her text to me, she explained that with Facebook owning Instagram, it would ruin its entire purpose. Probing further, she feared that Facebook, because it’s for “old people”, would “change Instagram.” Taking this offline, she explained a few fears. For her, Instagram is a world for her and her friends in her grade that was protected from Facebook gawkers and lurkers. Her thinking was that by Facebook owning Instagram, those gawkers and lurkers would invade her and her young friend’s world. Mark Zuckerberg promises a standalone Instagram, but will, of course, import all the pictures in their context and metadata, to be monetized like everything else is in the Facebook network. My daughter wasn’t alone in her fears.

Like Mathew Ingram reported in GigaOM, many other people, including grown adults, were airing their grievances. Many even retweeted my daughter’s text in a sign of protest. As of right now, the text had been viewed on Twitpic over 71,000 times and was retweeted over 3,200 times. While the protesters probably represented small but vocal minority, they certainly were a passionate and diverse group. All of this passion highlights a theme I’ve been researching for a few months, the verticalization of social media.

Over an extended period of time, all markets go vertical or specialize, all the way to the point where the market cannot support any more divisions. Sometimes the segmentation is too gray and not demonstrable enough to support the business model. Look at TV channels, cars, tooth paste, and shampoo. They have all segmented beyond belief if you been alive long enough to see it from the beginnings. Cars are a good example. At one point, there were very few different types of cars consumers would want to buy and that manufactures offered. Now it seems that every brand has sedans, coupes, mini-vans, station wagons, SUVs, “minis”, sports cars, trucks, hybrids, etc. TV sport is another good example of specializtion. When I gew up, I could only watch sports on one of four network TV stations at very regimented times of the day. Now, from Austin’s Time Warner Cable, I can get access to over 50 different sports channels whenever I want, 24 hours a day. I see the same situation playing out with social media.

Socal media is now starting to mature, fragment and specialize. Facebook, for now, are many people’s “home base”, but as in life, all people have to leave home sometimes. That’s exactly what people started doing with a few sites like these:

  • Pinterest– Lifestlye social interactions around the “beautiful things you find on the web”.
  • GetGlue– Entertainment social interaction around what people are watching on TV, at the movies, playing, reading or listening to.
  • Foodspotting– Food social interaction between people who like to eat out and show off what they’re eating.
  • Goba-Face to face social interaction by bringing people together in the real world.

There are hundreds more services like these that cater to narrower slices of social interaction, but it’s not all rosy in the specialized social media world.

There are gating factors all markets need to overcome to move to specialization. For cars, it was a market large enough to warrant specialization plus the “sharing” of key parts like engines and chassis. For social media to specalize, it needed a home base, like Facebook, to provide login, authentication and open APIs to cross-post content and opinions.

Facebook has enabled the growth of these specialized social media sites. It’s a good thing they did, or Google would have done it and Facebook may not had nearly the lead they have today. This doesn’t mean Facebook will continue to leave its door open forever, though. Another potential growth-inhibiting factor is obvious; the number of active users and friends. There has to at least be enough users and friends to warrant going there in the first place. This is killer #1, but is facilitated by Facebook’s APIs. With today’s UIs and interaction models, I believe that consumers can really only tolerate one major social media “hub” like Facebook then one, maybe two specialized social media sites that are somewhat connected back to the home base. This could change over time due to aggregation work like Microsoft does with its “People” apps, but for now it’s a reality that there’s only so many sites we can handle. The final growth inhibitor is linked to the first. If you cannot gain scale, then you won’t be large enough to make enough money to stay in business. Most social media experiences who pass gate #1 fail gate #2.

Can we learn anything from a pre-teen girl’s reaction to a $100B company purchasing a tiny company with less than 15 employees for $1B? I hope so. I know I did. Consumers are very picky and if we offer them thin enough social media slices with enough mass to be considered a community, they like it. We only have to look at Instagram and Pinterest’s fast growing bases of active users as evidence that this is only the beginning of the social media specialization revolution. What does this mean for Facebook? Facebook needs to be the best “home base” it can be, integrating and facilitating traffic between smaller, specialized social media services. While Facebook has trumped Google many times in the last few years, they should get the YouTube playbook from them to show them how to do a branded integration the right way.

Facebook and the Future of Web Apps

There was a little company, that I found interesting, called Strobe who was building a platform to help developers build and monetize HTML 5 web apps. I spent some time with their founder Charles Jolley, whom while at his time with Apple created the Javascript framework SproutCore. In our discussion it was clear that Charles and I shared much of the same vision for the future of the web and web apps in general. I had been intrigued with SproutCore since Charles developed it inside of Apple, which subsequently, Apple also open sourced. SproutCore is an open source framework that makes building fast and innovative web experiences easy and intuitive.

This is why my interest was again peaked when I saw that earlier this month Strobe and the team had been purchased by Facebook. This acquisition didn’t strike too many as big news but I think it is quite significant. It is no secret that Facebook wants to further leverage their platform with HTML 5 and web apps into the future. What struck me about the Strobe platform was the problem Charles and team set out to solve which is discovery and monetization of web apps. That is also the part that interests me about this acquisition because it means that Facebook sees itself more of a web app store platform. This isn’t terribly shocking, but now more than ever I think they have the pieces in place to make a run at being a next generation web app platform.

This all comes in light of recent rumors that Facebook is working on a pure HTML 5 and web app phone in conjunction with HTC. If this is in fact true then this acquisition of the Strobe team would make sense as Facebook looks to unify the web app model across their device ecosystem.

The real issue Facebook will have to deal with is around purchasing trust. Assuming what I propose above is true, Facebook will want to have a more intimate billing relationship with consumers in terms of purchasing web apps and possibly more. Right now Facebook does not have a trusted billing relationship with customers and this will be necessary for them to move forward. I am not sure how Facebook will resolve this and perhaps this new Facebook phone is a step in that direction.

The other way around the lack of consumer trust could be to have the carrier involved in the billing of web apps on this mobile phone. This could perhaps be a key strategic first step for Facebook to establish a more trusted relationship with consumers.

Looking at the big picture, the Strobe acquisition sheds more light on how Facebook is orienting itself to be a next generation web platform.

The 30 Percent Solution

 

Blogs are unforgiving. The entire world can see that I expected the highlight of Apple’s iPhone 5 introduction last week to be a kumbaya love fest between Apple and Facebook. Facebook is number one in mobile social media apps. Apple is number one in smartphones and tablets. Yet even after 18 months, there was no official Facebook app for the iPad.

So, other than the fact that there was no iPhone 5, and that no one at the Apple event even mentioned Facebook, let alone invited Mark Zuckerberg up on stage, my blog post was … well, pretty much in English.

But today, Facebook finally announced its Facebook app for iPhone and iPad.

According to the blogosphere, the hangup was caused by “negotiations” over who would be allowed to make money from apps sold by developers through the Facebook platform on the iPad. (You know, the developers who sell apps like Angry Birds, Hipstamatic, FarmVille,  weather, etc.)

Apple’s standard deal is: We take 30 percent, bitch.

Thirty percent on all paid apps, on all in-app purchases, and on subscriptions.

(Google has a variant on this revenue model for its own developer ecosystem: We take 30 percent but we’re not evil, bitch.)

Facebook sees that Apple and Google are rolling in clover, so it tells Apple it wants to create a separate revenue platform for mobile apps called Facebook Credits, and it wants to build it into Facebook apps that run on the iPhone and the iPad, which would bypass the Apple 30 Percent Bitch system and send that money directly to Facebook.  Negotiations must have gone something like this:

Apple: ”You know what we think of Facebook? We own the operating system and you don’t, and just to make that point absolutely clear we’re choosing Twitter over Facebook as the social layer of the iOS 5 operating system. We have more than 200 million registered users on the iTunes store and we have their credit card numbers, and we make buying apps completely smooth and painless and frictionless, and Facebook doesn’t.”

Facebook: “Oh yeah? Well, in that case, we’ll develop our app for HP’s new TouchPad. How do you like them apples?”

Apple: [30-day pause] “And how did that work out for you?”

Facebook: “Never mind. But we still have the most popular social platform in the universe, with 750 million users, and the only third-party Facebook apps you’ve got now on the iPhone and iPad basically suck. Even so, more than 250 million people use Facebook on a mobile device today.”

Someday I'll be remembered for this.

Apple: “True, but don’t forget, we have ‘Ping.’”

So it appears they have reached a compromise: Apple gets 30 percent, bitch, on all Facebook for iPhone and Facebook for iPad apps developed for the iOS operating system. Developers who want to create apps for Facebook on the Web, in HTML5, must use Facebook’s virtual currency, Credits.

Folks, what we have here are the latest salvos of a global war to create a new type of currency for online transactions, one that will rival cash and credit cards. Microsoft wants to be a player. PayPal (a division of eBay) wants to be a player. All of the mobile phone companies want to be players. When I walk down University Avenue in Palo Alto to get a cup of coffee, I pass what seems like 50 online payment startups that want to be players. The market for mobile apps and virtual goods sold through social networks and app stores is huge, and hundreds of millions of people are already opening their virtual wallets.

The Apple-Google-Facebook mobile app revenue models appears to be evolving along the Mastercard, Visa, American Express models. Developers who want to sell apps or virtual goods online can choose to whom they want to pay, except that the bites are larger by an order of magnitude. Apple wants 30 percent, Google wants 30 percent, and now Facebook wants 30 percent.

Aside: Will you trust Facebook Credits as your medium for buying things online? Google Wallet? A couple of months ago the marketing and advertising firm Ogilvy & Mather commissioned a survey on which brands consumers would trust with their money. It looked like this:

 


 

Anyway, I’m so glad that Apple and Facebook have decided, at last, to “friend” one another. I wonder how long they’ll stay friends?

I think this is going to be a very interesting battleground. But hey, I’ve been wrong before.