Month: September 2007

Microsoft to Buy 5% of Facebook? I Call Bogus.

Here we go again.

Microsoft is now supposedly in talks to buy a 5% stake in Facebook for $300M-$500M. That puts the value of Facebook at between $6B and $10B. It’s funny, only six months ago, Facebook’s minimum offer (that nobody would pay) was $2B. Now, with their amazing(ly low) $150M a year revenue, they want $10B, a five fold increase. What’s changed since then? Facebook Applications? Don’t make me laugh.

Clearly, their “2 billion” dollar self-valuation was based on what they knew. There are two explanations: either they knew about Facebook Apps coming and felt it wasn’t worth that much, or they cooked up and implemented the $8 billion dollar Facebook Apps idea overnight. I call bogus. This rumor is bogus. Facebook can’t justify a five fold increase in their asking price in a mere half a year without a substantial (and I mean five fold) increase in their traffic, users, or revenue — none of which seems to be the case.

Facebook Apps may have been a lucky idea they stumbled into a few months back, but it certainly can’t be the reason they are going to ask for $10 billion dollars. It’s simply not proven yet. And on a price based purely on speculation, the timer is ticking, and Facebook has yet to see dazzling revenues that justify even a price tag of $2 billion.

That, or Microsoft is just that desperate.

Sprint Moves into Homes

Sprint just rolled out a new device that let’s current subscribers free themselves from a land line. The device, (horribly) named Airave, allows a customer to use a broadband connection to enable VoIP functionality for their Sprint cellular phone.

The idea is that when you are outdoors, you use your regular Sprint plan. However, when you are at home, the phone switches to use the Airave, which also comes with unlimited call time. This means you have full reception no matter where you live (a common complaint, I am sure). Priced at a very competitive $50 for the device and $15/mo for the VoIP service, this bundle has a lot of potential. If it took an extra step to integrate with existing VoIP phones, it would be a home run. But given enough time, I am sure such products will evolve into exactly that.

Aside from the guaranteed awesome indoor reception and the flat rate calling, I like this product because it successfully merges VoIP phones with cell phones in a behind-the-scenes way. From Sprint’s perspective, it is genius: offload the network bandwidth of calls and dump them on the Internet provider — and charge a monthly fee for this privilege. Perhaps the most cunning point is that this service can convert virtually all Sprint customers who have land lines (i.e., steal customers from AT&T) thanks to the price that is very competitive to land line services (I pay $22 a month for my useless landline).

How the Housing Bubble Pop Will Burst the Internet Bubble too

I follow the tech news as closely as ever, it’s just that I think I am at a point where all news feels like “old news” by the time I have the free moment to write… 🙂 But I digress.

Recently, there’s been horrible turmoil in the financial markets due to the housing bubble’s collapse. It’s really beyond the scope of this blog to discuss this matter, but I believe the turmoil isn’t over for several more months. That said, I’ve wondered how it will impact the Internet 2.0 bubble that currently exists.

Unlike the previous bubble, this bubble is definitely fueled by results. As in, companies that are producing revenue are the ones that are becoming successful. But the big problem with today’s bubble – and why I refer to it as a bubble – is that the success is circular. If you cut any part of the circle, all other parts are adversely affected. It’s just like how in the housing bubble, everybody was making money because all prices were going up; success of one neighbor helped fuel the success of another.

Did you know that 37% of all online advertising dollars are spent on financial services such as mortgage loans? There are thousands of blogs, web services, and web applications out there that exist solely for advertising dollars. You might say, “That’s nice, but my company doesn’t deal with financial service ads!”

You are right. I would venture a guess that far less than 37% of web searches and web sites are financially oriented. However, if advertising dollars dropped, it chills the advertising market as a whole. If financial service advertising dollars dropped 30%, for example, we could be talking about a double digit revenue drop (11%) for companies like Google and Yahoo. But it doesn’t stop there.

Once news of a weakening economy starts to sink in, followed by news that Google and Yahoo fell far below sales projections, venture funding begins to cool. Right now, we are beginning to see the reemergence of dumb investments straight from the bubble 1.0 playbook. These types of investments will be be the first to die off as risky investing will be highlighted by the other crash. Certain breeds of “go until a fool buys us out” startups die. 

All of this relies on the fact that online advertising somehow grows less effective. If online advertising were to become even more effective, a correction would not occur. So then I close the circle with the other secondary effect: consumer spending.

As consumers begin to spend less due to a cooling economy, that definitely effects Internet ads. Internet shopping is the epitome of impulse buying: shopping is as simple as two clicks and typing in your credit card number. But these types of purchases are the first to die off when consumers feel a pinch.

Some of the largest sites in the world are still only small companies when compared to equally ranked brick and mortar businesses. And believe me, their equivalently ranked real-life business counterparts have a much larger profit. And like all bubbles, because the Web 2.0 bubble is circular, any slowing in one sector drags down the rest. That is because the bubble is driven by speculation. There are probably 100 or more funded video startups out there, but most if not all are just running losses.

Everybody is speculating that these will become the next big thing, and thus dumping cash on them. Wait, isn’t that exactly the same thing as what happened with all those homes?

In a speculation driven market, a correction is inevitable. It’s exactly how the housing market got to where it is now.

iPhones Drop to $400, iPod Touch is Real, Apple Invents new Revenue Sharing Trick

Yesterday, it was revealed that the iPhone was the top selling smart phone in July. It beat ALL of its competitors.

Today, Apple announced they are dropping the 8GB iPhone price to $399 — a full $200 price drop! They’ve also completely phased out the 4GB model. Seeing as the iPhone is already destroying competitors, this price drop should have RIM, Motorola, and friends all soiling their pants. The new, lower price point will further expand the iPhone market closer to the general consumer, placing it – finally – in a reasonable price range that makes it directly competitive with other smart phones. AT&T must be popping champaign bottles as we speak. Just think: a 4GB Chocolate phone $200 or an 8GB iPhone for $400 — but the iPhone also has wifi, a full featured video player, a higher resolution screen, a non-crippled browser, and calendar syncing functionality. Pretty competitive, no?

Related to this development, the iPod Touch is a reality. This iPod will have wifi capabilities and will cost $299 and $399 for the 8GB and 16GB versions respectively. The new wifi capabilities means people will be able to purchase music without being on their home computer. Even more ground breaking: the iPod touch has Safari in it! Every single iPod user out there will become a Safari using, mobile Internet loving Apple drone. Microsoft is pissed. Web standards are going to explode. And this means mobile browsing will finally hit a full-fledged mainstream audience. Oh, and it has calendar and contact syncing with your computer. It’s a shame it didn’t come with a camera too — I suppose Apple didn’t want to complete too much with its own iPhone.

Lastly, Apple and Starbucks partnered up. This partnership is not too interesting on its own. Whenever you hear a song in Starbucks, you’ll be able to buy that song on your iPod/iPhone. While the integration itself isn’t that interesting, the application of wifi sharing is. Just imagine a year or two from now when Apple has partnered up with major groceries, restaurants, and department stores. How many times have you heard a song and thought, “Wow, I want that song, what is it?” Now, the location you hear that at might have an incentive to give you free Internet in exchange for revenue sharing. It means more wifi access for consumers, and more iTunes purchases for Apple. It’s genius.