Facebook Is Growing Through Risky Business

Facebook COO Sheryl Sandberg. Photo: World Economic Forum/Flickr

It’s easy to get caught up in Facebook’s new earnings numbers; revenue and adjusted profits spiked impressively in the first quarter, and mobile business boomed. But if you listen closely to what Facebook executives say as they release those stats, it’s clear the social network has set down a risky path that banks on following users ever more closely and selling to advertisers ever more aggressively.

In first-quarter financials released yesterday, Facebook said revenue rose 38 percent to $1.46 billion and that mobile advertising climbed to 30 percent of ad revenue from 25 percent of ad revenue in the prior quarter; analysts had expected revenue growth of just 36 percent. Adjusted earnings, meanwhile, were 12 cents per share, flat compared to last year and below analysts’ estimates of 13 cents per share.

In a call reviewing those numbers, Facebook executives crowed about how more people are spending more time with Facebook on more platforms than ever before, how advertisers large and small are plowing money into the social network, and how Facebook is investing in innovative new products like Facebook Home and Graph Search.

Then they talked about change. Change is inevitable at Facebook; though the company made $5 billion in revenue last year, it did so largely by targeting people on desktop computers with relatively straightforward advertising that for the most part paid by the click. These days, Facebook’s users are shifting to mobile, and advertisers want ever-more sophisticated targeting options.

So Facebook is moving to meet both camps, and doing so with impressive speed. But it’s far from clear whether its new business model will work as well as the old one.

Take mobile advertising. Facebook has earned appreciative backslaps from Wall Street from going from zero to 30 percent mobile ad revenue in just three quarters after remaking its flagship app and rolling out a host of new mobile ad options. Trouble is, much of the money Facebook rakes in on mobile comes from app makers, who pay Facebook to push their apps at users most likely to be interested in them, based on data from their friends and phones. These are, generally speaking, speculative advertisers, often venture backed, hoping to get rich off their software – exactly the type of businesses that tend to disappear when there’s a cyclical downturn in the now-booming tech sector.

When probed by analysts yesterday, Facebook declined to hint at how much of its mobile advertising comes from these app makers. But Facebook brass bragged about the app install business early and often during yesterday’s call. “One of the developments that’s been interesting is seeing how big an opportunity mobile apps can be for Facebook,” Facebook CEO Mark Zuckerberg said just four minutes into the call. “It’s clear now we can create a lot of value for developers… and we’re starting to see real revenue through selling mobile app installs.” COO Sheryl Sandberg later added that mobile app installs “performed very well this quarter,” driving 25 million downloads and being used by 40 percent of the top 100 grossing apps across iOS and Android. “Recently the app install ad product… is showing some real traction,” Zuckerberg reiterated later in the call.

Facebook is walking another precarious road with how it sells to its large, longtime advertisers. Facebook was once content to target based on data it collects directly from users and to get paid mainly when users click ads. It is rapidly evolving into a nexus where information about things you do far from Facebook, both online and offline, comes together with advertising that is often bought and customized in the blink of an eye through instant-bidding platforms like Facebook Exchange. Facebook can now select an ad based on what you’ve bought in the grocery store, where else you’ve been on the web, and even what you’ve been searching for on other sites.

As its targeting grows more sophisticated, Facebook is also hinting that it would like to expand how it bills advertisers; it could follow its users after they merely glance at an ad, watching their online buying habits and real-world store visits and billing the advertisers if any transaction occurs.

Sandberg didn’t say if or when Facebook might introduce such a billing system, which would presumably be enabled by data-tracking technology called Atlas that Facebook acquired earlier this year. But when pressed by an analyst she acknowledged that Facebook is trying to grow its business selling ads that are merely viewed rather than clicked.

“Our focus with Atlas is on impression based ads,” Sandberg said. “As people have looked more holistically at all the ad spending they’re doing, what they find is that it’s not just the last click that matters but all the impressions leading up to that click. Importantly, we also drive sales offline, and offline people aren’t clicking through to purchase at all — they’re actually walking into a store.”

As it collects more and more data on users, Facebook argues its ads become more relevant and thus more palatable. And clearly, the company would like to extract more money from advertisers in exchange for such smartly-aimed spots. The question, as Facebook builds the all-knowing ad-based revenue engine of the future, is whether users and advertisers are willing to go along for the ride.

Source : Wired,  RYAN TATE05.02.13

The Data Made Me Do It

Would you trade your personal data for a peek into the future? Andreas Weigend did.

The former chief scientist of Amazon.com, now directing Stanford University’s Social Data Lab, told me a story about awakening at dawn to catch a flight from Shanghai. That’s when an app he’d begun using, Google Now, told him his flight was delayed.

The software scours a person’s Gmail and calendar, as well as databases like maps and flight schedules. It had spotted the glitch in his travel plans and sent the warning that he shouldn’t rush. When Weigend finally boarded, everyone else on the plane had been waiting for hours for a spare part to arrive.

For Weigend, a fast-talking consultant and lecturer on consumer behavior, such episodes demonstrate “the power of a society based on 10 times as much data.” If the last century was marked by the ability to observe the interactions of physical matter—think of technologies like x-ray and radar—this century, he says, is going to be defined by the ability to observe people through the data they share.

So-called anticipatory systems such as Google Now represent one example of what could result. We’re already seeing the transformations that big data is causing in advertising and other situations where millions of people’s activity can be measured at a time. Now data science is looking at how it can help individuals. Timely updates on a United Airways flight may be among the tamer applications. Think instead of statistical models that tell you what job to take, or alert you even before you feel ill that you may have the flu.

Driving this trend is a swelling amount of personal data available to computers. The amount of digital data being created globally is doubling every two years, and the majority of it is generated by consumers, in the form of movie downloads, VOIP calls, e-mails, cell-phone location readings, and so on, according to the consultancy IDC. Yet only about 0.5 percent of that data is ever analyzed.

“There is so much more data out there that you can afford to tailor it to the individual,” says Patrick Wolfe, a statistician who studies social networks at University College, London. “Statistically, strength comes from pooling people together, but then the icing on the cake is when you individualize the findings.”

For the data refineries of Silicon Valley, like Google, Facebook, and LinkedIn, the merger of big data and personal data has been a goal for some time. It creates tools advertisers can use, and it makes products that are particularly “sticky,” too. After all, what’s more interesting than yourself? Facebook suggests who your friends might be. Google Now gets better the more data you give it.

Exposing more personal data seems inevitable. With the huge jump in sales of smartphones packed with accelerometers, cameras, and GPS, “people have become instrumented to collect and transmit personal data,” says Weigend. And that may just be the start. Already a fringe community of technophiles, known as the quantified-self movement, have been equipping their bodies with sensors, pedometers, even implanted glucose monitors. One we will feature in this month’s MIT Technology Review Business Report is Stephen Wolfram, the creator of the search engine Wolfram Alpha. Wolfram has for years engaged in a massive self-tracking project, cataloguing e-mails, keystrokes, even his physical movements. Wolfram is interested in predictive apps, but also in the insights that large data sets can have on personal behavior, something he calls “personal analytics.” Wolfram’s idea is that just as his search engine tries to organize all facts about the world, “what you have to do in personal analytics is try to accumulate the knowledge of a person’s life.”

The holdup, says Wolfram, is that some of the most useful data isn’t being captured, at least not in a way that’s easily accessible. Part of the problem is technical, a lack of integration. But much data is warehoused by private companies like Facebook, Apple, and Fitbit, maker of a popular pedometer. Now, as the value of personal data becomes more apparent, fights are brewing. California legislators this year introduced a “Right to Know” bill that would require companies to reveal to individuals the “personal information” they store—in other words, a digital copy of every location trace and sighting of their IP address.

The bill is a part of a social movement that is demanding privacy and accountability, but also a different economic arrangement between the people who supply the data and those who apply it. People want more of the direct benefits of big data, and this month’s MIT Technology Review Business Report tracks the technology, apps, and business ideas with which industry is responding.

Source :  MIT Technology Review, Antonio Regalado on May 3, 2013

Will Utilities Embrace Distributed Energy?

Disruptive technological changes are at work but utilities are hamstrung by outdates business models and regulations.


How will utilities maintain the grid infrastructure in an age when people consume less energy from the utility?

A homeowner who puts solar panels on his roof immediately slashes his monthly electricity bill and gains a measure of independence from the utility. As more distributed energy technologies take hold, utilities in the U.S. are wondering out loud what their future holds.

It’s not just falling prices of solar photovoltaic panels that are slowly moving power generation out to the edge of the grid network. More people are looking at natural gas generators and energy storage systems that complement grid power and provide backup power during outages. And there are more ways to save electricity, such as efficient appliances and reports to encourage efficiency, or demand response to shave peak power use through smart thermostats. (See, Nest Thermostat Slays Peak Power.)

Earlier this year, industry group the Edison Electric Institute (EEI) published a Disruptive Challenges report outlining the risks to the financial well-being of utilities from distributed energy. It recommends a push to reexamine policies that create incentives for renewable energy, particularly net metering, and advocating pricing changes that ensure utilities can recover the cost of maintaining the physical grid infrastructure.

David Crane, the CEO of NRG Energy, which owns power plants and provides residential utility service, called distributed solar a “mortal threat” to utilities earlier this year. Last week, he predicted that the natural gas industry will “disintermediate the electric power industry” and provide power-generating appliances in people’s homes, which could be fuel cells, microturbines, or types of Stirling engines.

“These energy-producing appliances on the cusp of being deployed will allow people to walk away from the grid and produce electricity in their home,” Crane said at the Bloomberg New Energy Finance conference last week.

The transition from a heavily centralized power grid to one with rooftop solar panels, natural gas generators at homes and businesses, plug-in electric vehicles, and technologies to reduce electricity use is clearly underway. Crane’s comments and the EEI report reflect the unease rippling through the traditionally slow-moving utility industry. The question is how utilities react to this transition and how that affects the future of electricity service.

Earlier this week, experts at the Advanced Energy Conference in New York City discussed how disruptive forces at play in electric power pose thorny questions, but offered few obvious paths for utilities to profit from them. Although there are a number of progressive utilities, their comments suggest that most utility industry companies will resist the dramatic changes imposed by technological changes.

The problem isn’t just that utilities will be marginalized if consumers and businesses can generate power themselves and only use the grid is backup. When customers use fewer kilowatt-hours either through efficiency or distributed generation, it cuts off utilities’ source of revenue and the way they fund up-keep of power lines, substations, and other equipment. Although rules vary, in general utilities propose infrastructure upgrades and state regulators approve those decisions and the rate of return they can make on those investments.

But if many more people lessen their reliance on power from utilities, the pool of available money to make those upgrades starts to shrink. The tab for upgrading the basic infrastructure, including smart meters, is hundreds of billions of dollars in the US in the next five years, says Bill Zarakas, principal at the consulting company the Brattle Group. Added on top are initiatives to make the grid more resilient in the wake of hurricane Sandy. Meanwhile, more efficient use of energy and muted economic growth means electricity growth nationally is essentially flat. “You’re really asking us to recover investments through sales but to sell less. It’s a bit of a disruption,” he says.

In a few cases, utilities have been able to earn revenue by owning rooftop solar arrays and other distributed energy assets, but that’s the exception. In New York, for instance, deregulation placed a de facto ban on utilities from owning power generation, which at the time meant centralized power plants. Now regulators are reconsidering those rules as distributed solar expands, says Kimberly Harriman of the New York Department of Public Service

In many ways, electric power is going through a similar transition to the telecom industry in the 1990s when deregulation introduced competition in local telephony, which cut off a reliable source of revenues for phone companies. “Distributed energy resource technology…can do to electric utility industry what wireless handheld technology has done to the telecom industry. This will be revolutionary,” said Paul DeCotis, vice president of power markets at Long Island Power Authority.

But Brattle’s Zarakas is skeptical that utilities can mimic the telecom industry’s transition and will somehow make up lost revenue from distributed generation and efficiency with add-on services. Telecom companies were able to offer much desired services—broadband Internet, mobile phone service, and content—but utilities don’t have any clear equivalents and aren’t normally in the business of offering innovative services, he says.

The disruption spills into the commercial world as well, where more universities and businesses are looking to establish microgrids that can “island” themselves from the grid if power goes out. (See, Microgrids Keep the Power Flowing Through Sandy.)

Overall, experts say that the basic funding mechanism for utilities needs to change so they have financial incentives to enable adoption of new technologies and encourage customer energy efficiency. Many changes along those lines could be a tough sell in the utility industry, which is famously conservative. But they may not have a choice. “Distributed generation is something that couldn’t be stopped even if we wanted to,” says Zarakas.

Source : MIT Technology Review, Martin LaMonica, May 3, 2013

BII REPORT: How Banking Is Going Mobile

Over the years, retail banks have innovated to make personal banking more convenient and consumer-friendly.
They've built sprawling branch networks, introduced credit cards, and developed automatic teller machines.


In its latest evolution, banking is going mobile. With smartphones and tablets increasingly at the center of financial decisions — especially those of younger consumers — banks have to get their mobile strategies right. If they don't, they risk losing business to more mobile-savvy competitors, as well as tech companies like PayPal, that are developing their own payment and personal finance solutions.

In a recent report from BI Intelligence,  we examine mobile banking's growth spurt, analyze consumer adoption behavior and barriers, detail the competition to develop the best mobile banking tools, take a look at some banking app pioneers and cutting-edge features, detail how mobile banking could be bottom-up, expanding bank and credit access worldwide, and touch on how this race affects the closely-related business in mobile payments.

Here's a brief overview of the current state of mobile banking: 

• The app race and platforms: In the highly competitive retail banking sector, any service or feature that helps a bank differentiate can lead to a greater market share, larger deposit base, and an edge on the competition. That's why banks have begun to invest heavily to integrate the latest and greatest features into their smartphone apps and mobile sites. We look at a few banking app pioneers, and explore the newest cutting-edge features. We also take a peek at the technologies that power mobile banking on the back-end, and the dealmaking that has surrounded these platforms in recent months.
• Bottom-up: Unlike past consumer finance technologies first adopted by the wealthy in developed countries (e.g., credit cards), mobile banking has caught on in poorer countries, and could expand bank and credit access worldwide. In emerging markets, many lack basic financial infrastructure and limited access to credit is a huge economic bottleneck. But even in the United States, where credit and financial markets are highly evolved, an estimated one-fifth of the adult population have limited access to banks.
• A mobile-first bank?: If the legacy banks don't succeed in redefining their services for the mobile age, they risk losing out to upstarts like Simple with innovative mobile-first banking formulas.
• Adoption barriers: Globally, the mobile banking user base is expected to grow at 18 percent annually to over 1 billion users by 2017. It's estimated that 590 million consumers will use mobile banking by year-end 2013. But, on the consumer side, there is still some resistance to mobile banking, reflected in relatively low adoption rates. We look at the five main barriers currently limiting adoption. 

Read more: http://www.businessinsider.com/how-banking-is-going-mobile-2013-5#ixzz2SJjbDWUF
Source : Business Insider, May 3, 2013, 

Silicon Valley And The Reinvention Of Food

Fake meats have been around for years, but a new crop of Bay Area startups backed by tech investors think they can make meat substitutes good enough to compete with the real deal. Beyond Meat — backed by Twitter founders Evan Williams and Biz Stone via their companyObvious Corp — created an eerily accurate chicken substitute, for example.

But the most ambitious project is Rob Rhinehart‘s cheekily named “Soylent,” an attempt to replace food entirely with a liquid shake that has all the protein, fat, carbohydrates and micronutrients you need. The only ingredients recognizable as food are salt and olive oil. He claims to have lived exclusively on the stuff for a month. He says he has started eating real food again, but two months later he still gets 92 percent of his meals from Soylent.

Rhinehart makes an unlikely food scientist. He’s an engineer fresh off a stint at a Y Combinator-backed networking startup called Level RF that never exited stealth mode. He says he doesn’t have a background in chemistry. “Formally no more than an undergraduate level, but I am a huge proponent of self-study, online courses, and textbooks,” he says.

He decided to create Soylent because he was tired of spending so much time and money on food. “It takes me about five minutes to portion out all the ingredients at this point,” he says. “Without water it keeps for years so I could make it far in advance to save this time.”

He’s still working out the kinks. For example, he recently posted that he had run into some trouble with sulfur deficiency. Next Rhinehart is looking to do controlled experiments with a much larger sample base. “I have spoken to no biologist that doubts the feasibility of this,” he says.

But mainstream dietitians remain skeptical. “My short answer is that I don’t know any more about this product than the limited information provided on the product website,” says Diane Stadler, PhD, RD — a registered dietitian and assistant professor of medicine at Oregon Health & Science University. Stadler warns that although we know many of the essential nutrients in food, we don’t know everything and there’s a strong possibility that an elemental diet like this could miss something critically important. “I would not promote this type of diet to the general public, as there are many ways that it can go wrong, especially if consumed long-term,” she says.

Rhinehart’s defense is that people who don’t eat well are probably already missing important nutrients. But he admits it needs more testing. He’s already selling the mix to several people, and is seeking funding. “I need funding to scale up production and conduct more controlled testing,” he says. “I have received orders of magnitude more requests than I can possibly fulfill, which is lost revenue.”

There are already many meal replacement shakes on the market, but Rhinehart plans to offer cheaper, customizable products. “An athlete would need a lot of protein, an elderly woman doesn’t need many calories, and a coder or engineer type could elect to have nootropics included, if desired,” he says. “Meal replacement products can be even more expensive than traditional food. Soylent is already much cheaper, and due to the lack of real food sources, scales very well in manufacturing.”

Given the Valley’s current penchant for food startups, I wouldn’t be surprised to see him land a round. Besides Obvious Corp, Khosla Ventures and PayPal founder and venture capitalist Peter Thiel’s Breakout Labs are also in the game.

Khosla is backing Hampton Creek Foods, which has a product called “Beyond Eggs.” It’s also backing a few other food and agricultural companies, including artificial salt company Nu-Tek Salt and fake meat company Sand Hill Foods. Last year at TechCrunch Disrupt San Francisco Khosla went so far as to say that the artificial beef, which is made from soy protein, is still “beef.” At any rate, Anthony was pretty impressed with Beyond Eggs earlier this year. Khosla also has investments in a company working on alternatives to salt and a beef substitute. Breakout Labs has invested in Modern Meadow, a company that aims to “print” lab-grown meat and leather.

All of these companies are challenging the common nutrition advice to eat whole foods and vary your diet. In fact all these projects fly in the face of current food trends that advocate whole, unprocessed foods. Both the Michael Pollan, “eat food, not too much, mostly plants” set and the Paleo set both agree that it’s best to avoid processed food and just eat what nature gave us.

But the implications could be wide for the world. I try to eat natural whole foods, but I always feel a bit uncomfortable hearing from organic food zealots and the anti-GMO crowd. Fresh organic food is expensive, and cooking meals from scratch is time consuming. And there are, y’know, starving people out there who would love to get at some highly processed, genetically modified soy.

“I think humanity has been running on the equivalent of crude oil for ages,” Rhinehart says. “Imagine creating an efficient source of fuel for every living human, alleviating global hunger and malnutrition, reducing the environmental impact of farming, performing research on poorly understood biological mechanisms and potentially bringing agricultural societies in to the global economy.”

Source : Klint Finley, Techcrunch, 4/5/13

Apple saves $9.2 billion in taxes … by borrowing $17 billion

There’s a reason the rich get richer and wealthy corporations get wealthier. They’re smarter than the rest of us, and they have more financial tools at their disposal.

Apple’s saving $9.2 billion in potential taxes by financing a chunk of itsrecently-announced $50 billion stock buyback via debt, Bloomberg says.

With the $10 billion share repurchase announcement made last year, the entire $60 billion stock buyback is the largest share repurchase plan in history, and will take until 2015. The problem is that most of Apple’s cash — some $100 billion U.S. — is overseas. And bringing that loot home would result in taxation at a 35 percent rate.

$35 billion extra in government coffers probably gives Washington hot flashes and sweaty palms, but it keeps Apple accountants awake at night. So the company is borrowing the cash it needs by issuing a record $17 billion bond offering with interest yields slightly higher than U.S. treasuries.

Borrowing money, paradoxically, is saving Apple money.

In addition, Bloomberg notes, interest Apple pays on the $17 billion debt financing will be tax-deductible, saving an additional $100 million a year.

This raises all kinds of issues about the ethics and morality of not repatriating cash and thereby avoiding taxes. Apple is not the only tech company that uses creative methods to reduce income tax payments — Google has a surprising $10 billion worth of revenue in tiny Bermuda, thanks to shell companies and wily sales of intellectual property. As a result, the search giant’s effective tax rate on overseas income is a ridiculous 3.2 percent.

And 50 other tech companies, including Microsoft, have collectively dodged $225 billion in U.S. taxes by sheltering their assets overseas.

The bigger question, at least for Apple investors, is whether propping up its own share price is a good use of Apple’s massive $150 billion in cash reserves. Other options, of course, include accelerating innovation — the companywon’t release a significant new product in two quarters — or acquiring companies that could help it grow faster.

Share buybacks are typically done by companies who feel undervalued by the market. Perhaps Apple should be making moves to address that problem, rather than treating the symptom.

Source : John Koetsier, Venturebeat, May 3, 2013 

Eventbrite CEO Kevin Hartz shares how startups can make their own luck by watching for colossal shifts

Speaking on stage at The Next Web Conference 2013 in Amsterdam, Eventbrite co-founder and CEO Kevin Hartz gave a talk on finding luck through a combination of preparation and opportunity.

Hartz, also an angel investor in major tech companies like PayPal, Airbnb and Pinterest, focused on both PayPal and YouTube as examples of startups that sought out colossal shifts, adjusted to their customer’s needs and weren’t afraid to pivot.

Did you know that YouTube was once a video dating site? I’ll let Hartz tell you the story:

http://youtu.be/SO9SjaGiCiI

Source : Harrison Weber, The nextweb, 3/5/13