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Is ‘Cool’ worth $3 B ? – The Snapchat Acquisition Offer

Is Snapchat worth > $ 3 B?

I was speaking to a colleague of mine on Friday and she said, she didn’t think that Mark Zuckerberg’s  offer to buy Snapchat for $ 3 Billion in an all cash deal was a wise move.  A debate ensued.

Is Snapchat worth > $ 3 B?

Is Snapchat worth > $ 3 B?

 

She being a freshly minted 21 year old contended that Snapchat’s value rested on its being perceived as ‘cool’ and counter-cultural by its teen audience, whom she claimed to know better than my 32 year old self.  While I agreed with her that a lot of Snapchat’s value did lie in its coolness, I also thought that it fulfilled a very important need for its core demographic; which was to erase pictures (discounting hacking techniques) of fun but potentially embarrassing moments of its users. More importantly, in this age of fast , instant and everywhere connectivity talking through pictures is a digital equivalent of ‘ here let me show you’. It’s a format that the Gen X understands better than the Gen Y , which still thinks of pictures as memories to keep a la Instagram.

Most importantly, however, I didn’t think that Zuck was being naive here. Quite the contrary, I feel that his motive behind the Snapchat acquisition was not to assimilate its teen audience into Facebook. But rather to figure out a way of owning and monetizing a demographic , that he is currently losing fairly rapidly, by using the Facebook back-end.

So I contended that if I were Zuck this is what I would do :

1)     Buy Snapchat but not touch it.

2)     Not impose the Facebook Social Graph onto Snapchat –  essentially, keeping the teens away from their parents.

3)     Monetize the service by using the FB ad serving machine but otherwise keep hooks back to the main FB platform limited.

4)     Cut Snapchat off, from any other major social media integration ( but this does not apply to Snapchat’s transient content structure, in any case).

I think Zuck’s and Facebook’s longer term play is to use the FB social graph and graph search to power services that can be monetized across demographics.

This is what we have witnessed ( so far) with Instagram and this is what we would have seen with Snapchat.

Keeping all this in mind, the acquisition offer makes a lot of sense. The price… well that’s another story, worthy of its own post.

We also had a separate debate on whether Snapchat, had it been acquired, or even as it is, will ever become as ubiquitous as Facebook and Instagram, but that’s another post too !

 

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#DelhiRape and #OurGuilt

So the unnamed girl died today. It’s difficult to imagine what to say…

You see, I am a problem solver. I like to take on problems I can solve. And this problem doesn’t seem like it’ll get solved by protests ( silent or violent) or raging against the government. Better policing and laws are required, period. But this is not just a law and order problem, no police force in the world can prevent rapes from happening at homes and other private places.

This is squarely a social problem. The problem begins with all of us ( both men and women) and we are taking the problem with us to these marches. I feel shouting and raging against the government is helping us deal with our own guilt and find a scapegoat. I am not being a government apologist here, these ass-wipes clearly have no clue what they are doing.

But that doesn’t excuse our culpability. So instead of *just* demanding that the guilty be hanged and demanding better courts and police force, let us take the day to introspect. Look at our own culpability in the raping and killing of this girl – and decide to make at least one small change in our lives and minds that can prevent this. Here’s a good starter guide to understanding your own mind for the men -http://www.cracked.com/article_19785_5-ways-modern-men-are-trained-to-hate-women.html . I feel guilty of a lot of things mentioned in this article. So I have decided that I no longer want to be controlled just by my genes ( evolution) and social training. I am going to make a conscious effort to make small but incremental changes in my outlook and speech towards women. That is the only way to create a long term sustainable habit. Everything else is catharsis and won’t help anyone but *you* deal with your grief and guilt..

 

Edit : Protesting includes :  social media activism, changing profile pictures etc. I am not against protesting or symbolic gestures, as long as they are backed up by a concrete, inconvenient self changing habit. Remember –  Do as I do and not as I protest..

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Flame >> Cyberwars + How your blender could kill you : Crossing the Rubicon 2

In the previous post I discussed  Stuxnet the first known state sponsored cyber weapon/virus. Stuxnet will go down in history as the first attempt by humans to use software  to escalate or prevent physical  war.

In this post we’ll investigate another suspected state sponsored virus Flame and also understand the impact these cyber weapons will have on the future of  war, technology and human society.

 

 

Flame is widely believed by international cyber security experts to be the work of the same group as Stuxnet. Although, no government has taken any credit/discredit for it and no expose’ has revealed it to be a government sponsored program.  Flame has been called the ‘most complex malware ever created’ by some leading security experts and for good reason. Consider this, for the last two years before it was ‘killed’ using a remote switch, Flame continued to operate within computers using Microsoft Windows without being detected by a single antivirus program. Flame has about 20 MB of code which is HUGE for a malware program.. but once you consider the full range of it’s capabilities it’s not surprising at all. You see Flame is the new Smiley, if you will. Flame is a spy. For two years it sent back information on computer keystrokes, recorded Skype calls, could switch on the voice recorder and the camera at will and could spread to connected computers through LAN, USB sticks or by converting the infected computer into a Bluetooth beacon. In short, it carried out all the jobs of a traditional spy by gathering data and intelligence on enemy targets, which in this case happened to mostly Middle Eastern countries like Iran, Syria, Saudi Arabia etc. Like Stuxnet the the ground zero for the infection was Iran. Mostly government departments, educational institutions, research centres and key scientists were targeted. Once it was detected by the Iranian Computer Emergency Response Team and a few security services companies like Kaspersky Labs in May 2012, the ‘kill’ switch on the program was activated and it basically wiped out all the traces of the virus/malware from the infected computers.

The Anatomy of a Spy

Consider for a moment, what was just been described. A software program has just replaced a traditional military/intelligence role and yet been as – if not more, effective.

This leads us to our next section. What will the cyber wars, of the not too distant, tomorrow look like and why should you care?

So let’s start with you.. :) . Practical predictions :

1) The cost of your computer whatever it’s form factor desktop, mobile phone, tablet, console etc.. will go up.  OEMs will start embedding more and more security features into the  hardware and basic OS when it ships out. The cost will be transferred to the end user – that’s you..

2) Computer security companies, as we know them today, will disappear! That’s right they’ll disappear because they’ll become too important for bigger OS developers ( think MS, Google)  and hardware manufacturers ( think Apple, Samsung, Intel ..) to maintain as an external vendor . So they’ll get acquired , this is already starting to happen with the best example being Intel’s acquisition of McAfee ( good explanation here : http://www.thevarguy.com/2010/08/19/intel-buys-mcafee-why-microsoft-symantec-should-worry/ )

3) Physical harm from devices : As more and more devices around the house start getting connected via a single OS to your home network and ultimately the Internet, there will be real danger of them being hacked. Think of the extension of the Stuxnet scenario with the Iranian centrifuges, except in your kitchen! If a malevolent hacker or criminal hacked into your home food processing unit he could end up causing serious physical injury! The crimes of tomorrow may be committed more silently and remotely  than we can imagine.  This scenario just reinforces #2 , say all your devices were connected using Android.. Google would Have to ensure security (esp. physical) before you bought into their One OS world..

4) You will become the credit card : As financial and banking systems become more and more computerized, the risk of being hacked becomes proportionately higher. We are not too far away from living in a world of computer credits, which will act as money or currency. In such a world the havoc caused by a virtual pickpocket could be exponentially higher and bring down the whole monetary system. To avoid this, world governments will start  meta-tagging all personal,  financial transactions with more and more biometric data  .. and the best way to achieve this? Embed a chip in your arm that you can simply swipe against a reader, generate a DNA signature file to attach with every transaction etc. … this is not some Sci fi movie with fancy moves. This will become mandatory, if you wish to live in the ‘civilized world’, as a direct result of malware and viruses forcing greater financial security.

5) Porn will no longer be free : This one is a major downer .. . But unfortunately, this will be the direct result of the Internet we now know of  not existing anymore… As countries fight cyber wars, each country will have National Internet borders to secure their citizens and other digital  and physical assets. Much like you need a visa and security clearance to enter the national boundaries of foreign countries, your computing device hardcoded with your biometric data will need to identify itself before crossing national and regional borders over the Internet… This will all result in a very tightly regulated Internet and nothing regulated is free…for too long.. not even porn :) ( As a result, Pirate nets will emerge where you can troll the lawless cyber lands w/o revealing your identity and enjoy free porn and other salacious pleasures.. but  you know what they say, when you visit the thieves den don’t be surprised if you emerge penniless :) )

The list goes on .. I could too.. but this post is already Much delayed so I am hoping you get the picture.

Destroyer Bot from Star Wars.. Are future wars going to be fought by these?

Cyberwars – World War 3

1) First thing first.. machines are not going to be fighting humans for at least the next 50 years, so you can relax :) .

2) Unfortunately, humans will use machines to fight and kill each other as they always have. Unmanned Aerial Vehicles (UAVs) are already fighting America’s war on terror in Afghanistan and Pakistan. We will see an increasing use of remote controlled machines to take out enemy targets and armies. Simultaneously, we’ll also need an army of cyber warriors trying to hack and break these command and control systems( which are computerized), to disable the fighting machines.

3) Ultimately and unfortunately it might not be required to send an army of men to fight and kill another country’s citizens… it would be much easier to say derail a train, crash an aircraft or even make a nuclear reactor go critical.

Humans will weaponize all technological advances sooner or later, as demonstrated in the past. The modern computer was born during World War II, hence it’s not surprising that the Internet born of computers should one day be the battleground of the future… Make no mistake the bugle has been blown, the Rubicon has been crossed.. it’s only a matter of time before  the war starts

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Stuxnet: Crossing the Rubicon – Part 1

Finally it’s official, the Stuxnet virus credited to have retarded the Iranian nuclear weaponization program by a few years and prevented a preemptive Israeli air strike was  created by the United States and Israel. The New York Times has published a stellar piece by David Sanger detailing the origins of the operation code-named Olympic Games. In his article Sanger details how the Olympic Games project, under the aegis of the US National Security Agency (NSA), started working on creating a cyber weapon under the Bush regime. This program was inherited and keenly pursued by Barack Obama after he assumed the Presidency.

The Stuxnet virus wreaked havoc on Iranian nuclear facilities, especially the Natanz plant. Sanger details how the virus was transmitted to the secure computer systems of the nuclear facility by infected pen drives used by scientists and contractors. Once in the system, Stuxnet continued to create trouble over a period of 3-4 years, before it was finally discovered. In one famous incident, reported globally at the time, it shut down about 1,000 of the 5,000 centrifuges used for refining uranium. Optimistic estimates supported by the Obama administration claim that the virus retarded the Iranian Nuclear Program by 18-20 months, but other experts are more skeptical.

In a startling revelation Sanger describes how the Stuxnet virus, which was custom-built by the Israeli military intelligence unit 8200 and the US National Security Agency, jumped over into the mainstream Internet. The article claims that the Israelis, without the knowledge of their American counterparts, made alterations to the code base that allowed the virus designed to attack only nuclear and industrial plants escape ‘into the wild’ in 2010. It is learnt that the  American President and Vice President were livid about this but allowed the program to continue.By all accounts, the Olympic Games project is still active.

 

The Hiroshima Atomic Bomb : Man now held power to cause planetary devastation

In the world that we live in, the revelation that the world’s biggest superpower, with an ally  created and used a cyber weapon against an enemy state is not shocking. After all, computer viruses only harm computer systems and sound like a cleaner way to conduct offensive operations,than say a carpet bombing attack. But the implications of this attack will be felt far into the future. Consider this, the  Chinese government through proxies has been using computer viruses to snoop and steal data from various governments and enterprises around the world for some time now. In one of the most famous incidents, Google backed out of China after claiming that its servers had been hacked by Chinese government sponsored hackers to target human right activists based in China. The cyber attack dubbed Operation Aurora targeted 34 companies in all including Google, Adobe Systems, Symantec, Yahoo, Morgan Stanley and Northrop Grumman. However, although the Chinese attacks did a lot of economic and ( possibly) military harm, neither China nor any other country is known to have used cyber weapons to cause physical damage to another country’s infrastructure.

But  today with the  ’close to’ official confirmation, it’s clear that the United States under President Barack Obama crossed the Rubicon in 2009, by deploying a cyber weapon against an enemy installation causing physical damage to the facility. Although, this weapon went off with not even the proverbial whisper of the first Atomic Bomb, the misery it will unleash in the future could  be much  more devastating. Now that the US has let the genie out of the bottle, it’ll be very difficult to contain other countries from undertaking similar operations against their enemies.President Obama seemed to muse on the same possibility in early 2010 and urged severe caution in how, and how often these cyber weapons were deployed. Because ironically, no other country is more computerized than the United States and hence  more vulnerable to a cyber attack. The consequences of a rogue state or organization unleashing a cyber weapon that results in shutting down of vital infrastructure like air traffic control systems, causing widespread death and mayhem remains a very real possibility. The Stuxnet attack will only justify a tit for tat response from these organisations and undermine America’s moral position in the cyber war yet to come.

Yet I suppose, weaponization of cyber space was an inevitability. In fact, we are very lucky not to have seen this  state sponsored weaponization happen earlier.  In the next post we’ll explore the consequences of the Stuxnet attack on the future of the Internet and humanity.

 

 

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Facebook :Value vs Valuation.Can the Book of Mark create a Brave New Social World?

Let’s start by *facing* the music. The fact that Facebook is not worth $ 38 a share or about $ 104 Billion today,  has been clearly decided by the market.  But while  Facebook might not be worth a 100 B , it is a Very ‘valuable’ company. The problem with most commentators is that they are confusing Facebook’s market cap with  Facebook’s long-term ‘value’ ( financial and social ).

In fact, so much has been already written about it  that, it’s impossible not to know all the related numbers. Suffice it to say that at roughly, $ 3.7 Billion  revenues, $ 1.8 Billion pre-tax profits and a 40 cent earnings per share, the Facebook IPO was a Big *facepalm*. So what does the future hold for Facebook and indeed its shareholders?

 

Facebook Investor at IPO Price!

 

Facebook’s Current Valuation:

If you bought at the $ 38  levels, you are a Big believer in the world and word of Mark!  The bad news is that you are going to be losing between 15 to 20% of that money over the next 6 – 12 months. I am not saying that FB might not touch, or go above $ 38 levels, briefly. But I believe that the trend will be between 28-33$ (  close to the original offering band) per share. Most experts, such as, Prof. Aswath Damodaran of  Stern School of Business, NYU believe that the right price for FB is 29$. Read his take here: http://goo.gl/zzRw6 . But as with all believers, if you have faith , I believe you will end up making good money on your investments, in the next 2-3 years.

Of course, if you are one of the smart investors who had the good sense not be lured by the Wall Street Mafia on IPO day, don’t buy yet! It’s a good bet that Facebook will touch the $ 26- 28 level. Anything at $ 28 or below is a good price to buy.

Okay, now that we have the price point for the stock settled. Let’s get on with the business of understanding how the price will rise. The only way the Facebook stock price will go up is if the company starts earning more per share, or in other words increases its revenues.

To do this it has to a) increase the number of users and b) monetize existing and new users better.

Let’s explore the User Growth Projections :

Facebook currently has about 900 million users about the same as Google. Facebook still has a lot of head room for growth  in the Indian and African market and might also be able to enter China ( thought that’s more doubtful). If it can make its mobile app more powerful and work on lower end phones, it can successfully penetrate the rural markets in India and Africa to increase the subscriber base by another 100-300 million or so in the next 3-5 years. That’s not a bad growth rate.  The growth in India and Africa will be on the back of new Internet users coming online, as Internet and broadband penetration increases, through both cellphones and desktops.

Great Infographic showing Indian Internet User Breakdown - by We Are Social

 

Better Monetization :

Facebook makes about $ 4 Billion yearly, today. That’s a lot of money, especially coming from a company making  just $ 150 M  just 5  years back  . But it’s not nearly enough to justify a $ 106 Billion valuation… especially since other companies valued similarly like Amazon make way more money ( about 11 times more than FB at $ 44 Billion for 2011) and have more established and tested business models. It’s not an exact science of course , investor perception of value matters as much as solid numbers (recall the havoc played on Apple stock a couple of months back). That is why a company like Google which has revenues less than Amazon’s at $ 38 Billion , is valued at about $ 200 Billion or twice Amazon’s market cap. Hence drawing direct comparisons only on the basis of revenue numbers will be a futile exercise.

Revenue Growth 7 years from launch for tech companies - Chart by Silicon Valley Insider

So what is this X factor about Facebook , that allows it to believe that it’s worth half what Google’s worth with 1/10th it’s revenues and a very nascent, untested and from all reports fragile business model ?

The Answer is : Social Data.

Facebook knows your friends and relatives, and their friends and relatives and so on. Knows what you ‘Like’ : what you like watching, what you like eating and where you like going. In short, because you ‘tell’ Facebook what you want and who you are, Facebook can in turn use this information to create ads that fit your tastes. In theory, these ads should work better because they are tailored for you.This should  allow Facebook to monetize  users’ data at a higher value than a company like Google, which doesn’t have access to this kind of information. Thereby it follows that since Facebook has as many users as Google , it should technically be making or will start making more money than Google, as the ads on its networks are more valuable to advertisers since they are custom-made for you.

But… it’s not that simple.Besides the fact that users are not crazy about ads on Facebook , there are serious concerns around privacy. Facebook is currently defending itself against a class action suit filed against it for $ 15 Billion. This is close to the  $ 16 Billion amount it raised through the IPO, for breach of privacy.

If nagging user concerns about personal data and suitability of a social network to showcase ads weren’t bad enough. Apparently, Facebook hasn’t been able to convert all the intelligence it has about you into a meaningful ad delivery service. This has resulted in a number of major companies, including most recently General Motors, pulling ads from the Facebook network.

In addition, with the rise of mobile Internet use worldwide, Facebook now has over 500 million users accessing the site on their mobile devices. That is a very large number of users and more than half of the total Facebook user base! But Facebook hasn’t yet cracked the code on how to successfully deliver ads on the smaller screens of the mobile devices!

So overall it seems like the Facebook business model and in turn the stock price is on very shaky grounds!

Resurrection of Mark and Facebook :

So you must be asking yourself , how the hell is it a good idea to buy stock of a company that makes 1/10th what Google makes with more data and the same number of users!

But as I said earlier, it’s a matter of faith, in Mark Zuckerberg , as he still controls 57% of the voting shares and effectively the company!

So here’s what Mark Zuckerberg Could do to make more money :

  • Facebook starts monetizing ads better on desktops by improving its backend AI for ad delivery – Facebook certainly has the engineering chops to do this. This one is also, fairly obvious.
  • Facebook transforms into the default communication tool for most people ; from a cool social platform.Users come to accept ads as a part of the service a la Google.
  • The same commoditization of Facebook results in users being willing to give Facebook their credit card details, thus kicking off F (FB!)- commerce.
  • Facebook continues to do what it is doing already by becoming the default social identity platform for all the world’s users. Thus creating a massive incentive for developers to create apps using Facebook’s APIs and on its social networking platform ( as already happens), This way Facebook will turn itself into a massive Social App Store of the future, and rake in billions of dollars in revenues from the third-party developers in commissions like Apple. Facebook has already launched its version of the App Store in many markets.
  • Facebook becomes a great place to market your apps and not just games. We already know that Facebook makes 17% of its revenues from Zynga, in the future, we are likely to see many such partnerships emerge.
  • Facebook figures out a way to make money from its mobile user base. Think value added services – like prints of photographs taken from its mobile apps. Note : Facebook released its standalone camera app for iOS devices, yesterday, in select markets.

  The Risks :

  • Backlash from users against use of their personal data for advertising and other purposes. This is a Major area of concern for Facebook. Facebook is all about its users and if it’s users start leaving in droves the total value of the platform decreases, as it’s no longer THE platform where almost everyone can be found.
  • Government regulations against use of personal data. Facebook has already settled with a couple of Federal bodies in an early marker of Governmental interest in user data and it’s uses. Worldwide as well, we see calls from different governments to regulate the use of Facebook by their citizenry.
  • Most importantly though, Facebook and Mark Zuckerberg can’t afford to get complacent. Because something cooler and better Always comes along. Like a better Mobile Social Network , not Path :).

In the end, whether Facebook lives or dies and whether ultimately it’s a good stock to hold, will depend on Facebook’s ability to innovate. As much work as Mark Zuckerberg and his team have already done to reinvent our Internet experience, a lot more work is still required to turn that experience into a profitable and growing company. Only by achieving great scales in business and revenue will Facebook continue to have the kind of impact it has already had in creating a Social Web, not just on the Internet but in the Real World as well.

If Facebook can create a stable business model and get to annual revenues of $ 40 Billion in 8-10 years. Be Prepared for a Brave New Social World! Whether you want it or not…