• An HTML5-based social application platform (currently missing from their mobile strategy and making embedded FB apps less important on mobile)
• Embedded contextual ads on existing Facebook widges, complete with rev-sharing – yep, it would be hated
• A truly threatening Adsense competitor for off-Facebook publishers – yep, could be hated too
• A FB credits fee of 5% (from 30%), and enable physical e-commerce – yep, threatens a working business model
• A connect-to-pay Paypal clone – yep, would increase Facebook’s financial liabilties

Yes they might harm them. Yes they’re risky. But they’re game changers. They flip the market upside down. They make existing competitors freak out. It pushes you even further as a leader. And, thus, the absence of such a risk shows how conservative Facebook has become.

Instead, they announced a glorified scrap book and some cool automated like buttons.

I’m sorry, but the timeline is hardly revolutionary. How is this remotely on par with the introduction of apps or the Graph API at previous F8 conferences? As a company approaching IPO, this was their moment to really show the world what Facebook’s potential could be. And so they showed off a bunch of visual fluff. The press is fawning over the newly released changes like the second coming of Jesus.

Not to mention all of these new integration points don’t even work on their current web-based or native mobile applications! What am I missing here?

I am disappointed.

To me, it indicates a certain condescending/naive attitude that the person has toward employees that is absolutely unacceptable. I once heard the analogy that management is like a rowing team. You’re the coxwain that helps keep the rowboat straight. Yet, when you think about it, you don’t lift a finger to help the results get done. If somebody gets tired or wants to quit, you can’t take out a whip and start cracking. At the same time, without the coxwain, the team will never make it to the finish line. You both need each other. All of my greatest accomplishments as a leader in an organization were because of the hard work the team put in. To forget that your staff were the ones furiously rowing is ignorant if not insulting.

When somebody thinks that “managing” equates to “having minions,” it’s not pretty to watch them get a little power. I’ve seen this a few times now and it had disturbing results every time. The usual trend is:

1. They give their staff all the boring, dirty work
2. They scold in public and praise in private (if at all)
3. They say, “I don’t need to be liked as long as work is getting done”
4. People start quitting

I want to address #3 really quickly. “Being liked” and “getting things done” are not mutually exclusive. A good leader will get both done together, every time. If you can’t create a work environment where people are happy, you aren’t qualified to be a leader. Think about the last job where you constantly went above and beyond. Did you like your boss? I bet you did. I am very confident in the importance of having a good relationship with those you work with.

This post isn’t about watching your language. It’s about watching your attitude.

You need your staff more than they need you.

The next real-world cash-replacement could be powered by Facebook, Google, Apple, Square, Intuit, Paypal, or some other company hiding in the wings.  There’s a few obvious names in there, and then there’s a few left-field ones to some people. This post isn’t about how those left-field plays could happen. I simply wanted to explain how the landscape is changing.

There’s a convergence happening right now between social, payments, and e-commerce. Imagine this predictable future:

You buy some coffee at Starbucks. You take out your phone and swipe it at the terminal. Your [insert phone app name here] Bucks (from here forth known as: “Phone Bucks”) are deducted from your account. Your purchase is optionally posted on your Facebook/Twitter stream. You get highly-targeted Groupon-clone notice for a Starbucks coupon redeemable online immediately. You decide to buy it using your Phone-Bucks — no signing in, no additional authorizations — by clicking a button.

We’re talking about a future where your online wallet (today, known as Paypal, Facebook Credits, etc.) follows you into the real world and ties directly into your mobile phone. This represents a single unified wallet. And it makes sense. That’s the future. That’s where we are headed now. I’ve been watching this trend happen for the past few years, and it’s exciting to finally see some big players waking up to this reality. Which players are the closest to achieving this? In this order:

1. Facebook – Due to its large install base (virtually all smart phones) and an existing currency platform (Credits), they are best positioned to move into the real world. And they recently made a huge move indicating a desire to do exactly this (creating a subsidiary is the first step in buffering liabilities that come with real-world payments).
2. Square (or Intuit depending on how things play out) – They would solve this from the other direction: they have a stronger real-world presence, and moving into the digital space might be easier than vice-versa.
3. Google – They will approach this from the platform (Android) by opening it (Google Checkout 2.0) up to developers and creating an ecosystem. They also recently stole a key exec from Paypal, so you know they’re serious.

It’s my belief that any startup entering the e-commerce landscape right now needs to make sure they are thinking about this convergence. To get big valuations, I think a startup needs to not only understand these trends, but be the first to market in the new paradigm that will be coming (really soon!). This convergence will create an opportunity for new players to emerge and destroy existing leaders. All mobile startups around commerce, Groupon, Paypal, and even the advertising arm of Google are probably already adjusting to these trends. Is your startup?

Think about it.

I feel they are addressing their threats in the wrong order. Their website wasn’t perfect, but it wasn’t their weakness either. Consider:

1. The Like button is dominating right now. Virtually every blog has it.
2. Facebook is a HUGE news traffic driver. Way bigger than Digg.
3. A lack of personalization was never Digg’s problem. Plenty of news sites on the web are popular with no personalization functionality.

First, Digg needs to figure out a way to make article submission “fair” for the little guy (read: long tail of users). They should have fixed the fundamentally flawed “democracy” where certain users effectively had 1000 votes. Personalization is an approach to the problem, but it ultimately doesn’t stop popular individuals from heavily influencing all of their followers’ feeds (and thus accumulate votes). The main complaint was that only power users could effectively get articles to the front page. Perhaps the algorithm should better incorporate Digg-to-viewer ratios or weight Diggs from non-followers as greater. The point is, until this is fixed, Digg will never fully engage its non-power users due to a lack of incentive. This represents the vast majority of its user base.

Second, Digg needs to up readership engagement. They should really look at their Digg button and see how it compares against the infamous Like button. It needs to be as brainless as the Like button. Clicking on “Digg This” should instantly submit the article to Digg. No windows; no dialogs. This is how the Like button works, and its pervasiveness shows how simplicity can trump everything else. Of course, doing this might mean changing how article submissions work on Digg — no problem: let power users check a setting where they ARE prompted for a custom title or description. The point is, the process needs to have as few places as possible where a user can change their mind about participating in the Digging process.

The website, I think, was never the problem.

Let’s start with an example to illustrate. You’re in charge of a small company that picks up garbage after events like street fairs and parades. However, you just got an angry call from your customer (the city) that your company has been doing an increasingly poor job and they are threatening to cut your contract.

You can fire and hire people, but ultimately, you or some new manager will need to fix the culture of the team. Aside from the obvious choice of talking to your staff about goals and values, let’s assume that incentivizing performance ends up being the option you go with. It’s time to play with fire.

What are some obvious ways to incentivize good cleaning efforts? There are many, but I’ll focus on a really obvious one for this post: Tie bonuses to volume/weight of trash picked up.

Is this a bad incentive? Not necessarily. But if executed poorly, it can be disasterous.

Which is more important to pick up? The pile of 50 napkins or the four empty soda bottles? Under this solution, people would be incentivized to ignore napkins, ciggarettes, and plastic bags while encouraged to chase after bottles (bonus points for liquid content) and discarded food. In fact, once employees start realizing this, they might even start picking up rocks and dirt instead of actually cleaning — in effect making the situation worse.

The situation above is universal across all industries. In software, the oft cited “Dilbert” situation is when performance gets tied to lines of code written. The point is, any system introduced that attempts to incentivize a certain type of behavior can cause employees to focus on the wrong thing. If you tell your staff that closing bug tickets is tied to bonuses, your entire team will focus on that metric like a laser. This will be good at first until you realize that everybody is spam-fixing the “mispelled text” bug tickets and nobody is bothering with the REAL problems.

With information becoming increasingly available, I’ve been thinking that the head hunting business will go through a major destructive phase in the next few years. There’s two things the Internet changed:

• Better distribution of information on job openings
• Better distribution of information on candidates

Definition: For those of you who are unaware, head hunters are professionals that search for employees and pair them up with open positions in companies. In a typical scenario, a company will pay a recruiter (head hunter) a fee that equates to 2-3 months of that employee’s yearly salary. Companies pay this because recruiting employees is expensive. I’ve done a lot of hiring in the last few years, and I know how time consuming it is to review hundreds of resumes and then interview. A head hunter is basically an outsourced HR department. Additionally, candidates often approach head hunters who re-post job openings in various job boards.

And there’s a third trend that will come based on increasing information available to the public:

• Automation of job and candidate pairing

A long time ago, I was business partners with a man who was formerly a head hunter. I remember him telling me how wonderful the internet made his job. He told me that when he was my age, recruiting meant shaking a lot of hands, memorizing every face and name you ever met, and storing large piles of business cards. For him, recruiting was now about posting jobs on Craigslist and Monster and referring the candidates. To him, he was still the gatekeeper. These days, anybody can be a headhunter with a little Internet know how.

head hunter productivity goes up first, then down (we are in the middle stage now)

However, sites like LinkedIn can change all that. The one true value proposition that head hunters provide is that they serve as match maker. But as more information is available and technology improves, this process should become more and more automated. For example, right now, LinkedIn has job postings. On its own, it’s just a new competitor to Craigslist, but what makes things interesting is that LinkedIn also has the data points to find all of the candidates out there that might fit the job requirements — without anybody lifting a finger.

Right now, the information stream is mono-directional: job postings (and recruiters) broadcast information. The goal is a bi-directional system where seekers fill out their requirements (a.k.a. their resumes) and both sides let the system do the matching. This can only work if both sides have maximum information about the other. Think of it like dating site for job seekers. It’s a hard problem to solve given the time-sensitive nature of job searches, but it’s an inevitable outcome as more and more information centralizes onto the Internet.

5AM thought of the day.

Hello, I’m here to announce two new websites of mine: Epic Google and Weenie Google. They’re extraordinarily simple ideas. Feel free to mischievously make it the home page of your friends.

Unlike the last idea of mine (Google Loco), I made sure these pointed to domains that didn’t have “Google” in them. I did not enjoy the fact that Google blacklisted my Loco domain (A tip for the rest of your parody makers out there)!

Anyway, yes, I do keep this site in mind. And for any of you paying attention, I hope it’s not the end of the (open source database) world that Oracle bought Sun. I think it’s funny that Oracle just bought Sun for a price that puts MySQL’s value at 1/7th Sun’s value. Maybe instead of buying up MySQL, Sun should have been focusing on their own business strategy. And they did it during the hardest possible economic times. Moronic.

Oh well. As they say, “when the tide goes out, you can see who’s not wearing shorts,” right? I do feel bad for MySQL though. They dodged the Oracle Bullet only to get caught under the Oracle Steamroller.

Lately, I’ve been doing stock trading, and have come to learn first hand about the energy and commodities bubbles that were slamming the market. And when that thing was going crazy, it helped deflate the banking bubble, which was a direct result of the housing bubble. And in many ways, the housing bubble was a result of the dot-com bubble bursting due to people exiting the stock market in search for a new investment. And everybody in the web industry likes to think they are wise to bubbles because they learned their lesson in the dot-com boom. But it is increasingly evident that this is not the case.

An Example Exercise

The problem here is that people are approaching this with the mind set of “this will be somebody else’s problem after I sell it.” It’s important we try to figure out what happens to the eventual owner of the startup.

1. Take your favorite Internet 2.0 company. Decide how much you think that company is worth. $5 million? $10 million? $50 million? $500 million? The sky is the limit!
2. Imagine now that you are going to trade your life savings for a current minority chunk in the company. If the company doubles up, so does your savings, but if it goes under, your savings are wiped out.
3. Remember that number you threw up there in step #1? You aren’t allowed to cash out ANY PROFITS until the company is sold to a buyer.
4. Your startup may not sell until it has reported a yearly net revenue of 10% of your purchase price.

That last part is the key because it effectively stops the hot potato game and forces you to examine if the company is truly viable. Some people would accuse that of being an unfair restriction, but I will show you why this is the key part in understanding why there is a 2.0 bubble.

Defining the Bubble

Let’s take a second to define a bubble:

An investment yields a return, much like a chicken can produce eggs, a savings account produces a yield, and a farm produces crop. This return is not always immediate, and is not always in the same terms as the input. Also, it is almost a law that returns are proportional to risk (some investments have negative returns). But ultimately, it is called an investment because it will (usually and) eventually generate more value than what you put in.

Now consider an investment that does not create a return. Such an example would be the web stocks of the dot-com boom. Back then, fundamentals like earnings, operating margins, and profitability were ignored when evaluating a stock. Companies that bled millions of dollars a year saw their stocks rising at record levels. This is because the investment – the stock – was being traded to somebody else for a profit because that next person believed they could trade it for an even higher profit.

A bubble is defined as a trend where merely owning something long enough to sell it is profitable. It is a giant game of hot potato. Everybody is essentially a middle man between the original owner and the eventual owner — adding to the price tag at every step. Eventually, people wise up and no longer want to trade the hot potato, causing the bubble to burst.

And most importantly, let’s define a bursting bubble:

A bubble is defined as bursting when the value of the traded item reverts to its true market value.

Understanding the Exercise

So let’s talk about the exercise again: if you thought the company was worth a paltry $50M, then your assets are stuck inside that stock until the startup can earn $5M in revenue AND be profitable while doing so. Why did I pick such restriction? Because those are reasonable things to assume when buying any other type of company. Why would another company offer to buy the startup if it failed to produce respectable revenues?

Given this extremely reasonable reality-check requirement, would you want to tie your personal investment to the startup being able to produce a profit? If the startup you chose has revenues and is profitable, then this article doesn’t apply to you. =)

Speculation Should Still be Grounded on Fundamentals

People aren’t investing for what 2.0 companies are worth today, it’s all about tomorrow. I agree that it is important that tomorrow’s profits are taken into today’s valuations, BUT isn’t this reasoning eerily similar to the reason people listed as to why they bought over-priced houses and profitless dot-com stocks? Both were purchases made while completely disregarding the fact that the *current* valuation of the items were negative.

But since that day of profitability is so far away into the future, you end up playing a giant game of corporate hot potato. Most people would agree that a profit of 10% is far better than a loss of 90%. So as soon as you find a sucker to pay 10% more than you paid, you bail. And of course that guy who bought your stake is thinking the exact same thing — sell this to somebody else for 10% profit before something bad happens. That’s a bubble, my friends.

In Conclusion

In 2001, the bubble was all about going IPO so that the general public could hold the hot potato.

Today, the bubble is all about selling to a big corporate entity that will hold the hot potato.

There is no difference.

If you are currently thinking about entering the 2.0 scene, think carefully about what your end goal is. If it isn’t “to be profitable”, then it’s likely just another bubble startup that will become completely worthless once the bubble pops. And believe me: given our current economy, that bubble is going to pop in the next year or two.

Finally, an extremely interesting speech about bubbles given in 2006 (gets good around part 2):

Part 1

Part 2

Part 3

Part 4

Part 5

Part 6