The web’s big weakness

How a hands-off customer model may doom many of today’s social media and web services

There’s a fundamental flaw in the way the tech industry does business, that weakness could be what ultimately kills many of today’s new media, web and social media services.

AirBnB, an online home share service, is one of the darlings of the booming Silicon Valley start up sector, having recently being valued at $1.2 billion after a successful capital raising.

Like most Web 2.0 and social media businesses, AirBnB’s advantage is in the low operating costs where customer support is left to the service’s peer review and social media communities while AirBnB pockets a commission for simply making the connection between the landlord and tenant.

The flaws in this “all care, no responsibility” model became apparent last month when a lady posted a description of her house being ransacked by an errant housesitter she found through AirBnB.

AirBnB’s management responded to the article with assurances they were helping and working with their affected customer, claims which were promptly contradicted by the original victim.

To make matters worse, certain prominent members of the Silicon Valley investment and blogging communities alluded she was lying or was “batshit crazy.” Now that other stories of bad AirBnB tenants are appearing, the view this is simply the untrustworthy word of a deranged customer affected by their first such incident is looking hollow.

Failing to deal with customer problems is not unique to AirBnB, hiding behind impenetrable layers of “support” backed up by user hostile terms and conditions is familiar to anyone who has had to deal with an online service gone wrong.

Last month Thomas Monopoly found he was locked out of his Google account and had it not been for the intervention of a senior Google employee, Thomas’ problem would probably still be stuck in an endless feedback loop.

Exactly the same problem has been encountered thousands of times by other users of web mail, social media, online auction and matchmaking sites.

Many of the people running these services retort their products are free so users get the support the support they pay for – an argument conveniently overlooking that most “free” web services are based around selling customer data – but even this does not justify delivering the basic services users have been lead to expect, regardless of what a 5,000 word user agreement states.

Today’s tech startups, and many of their big established cousins in the IT industry, have the idea that customer support is an optional extra and an expense to minimised or outsourced.

In this respect they are not too far removed from dinosaur car manufacturers or some of today’s less dynamic retailers offering little in the way of customer service or after sales support.

That way of working has died as consumers have been able to go online to vent their dissatisfaction, strangely today’s hot tech start ups seem to have missed this aspect of the revolution they have helped start.

Ignoring consumer problems is exactly what’s bringing traditional businesses unstuck in the online world. The funny thing is it might bring many of the online business undone as well.

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Is Facebook worth $50 billon?

Investment bubble or a wise bet?

Goldman Sachs’ recent $500 million investment in Facebook that values the entire business at fifty billion dollars raises the question, can a business that was founded in college dormitory seven years ago really be worth that sort of money?

It is possible Facebook is worth that sort of money, but to figure out if it really is, we have to crunch some numbers. So here is a back of an envelope calculation.

Learning from others

The first thing we need to look at is similar examples, the closest comparison is Google who were launched on the stockmarket shortly after Facebook were founded and today have a market worth of $195  billion.

So Facebook’s investors are valuing the business at about ¼ of Google’s size. Yahoo’s stock analysis of Google allows us to look at the rough numbers.

Income

Currently, Google is earning 29.3 Billion and making a profit of 8.5billion for a Price to Equity (P/E) of 23.26.

To justify a 50 billion dollar valuation on similar rations, Facebook would have to make around 2 billions dollars profit on revenues of $8 billion .

Facebook is reported to have made $1.2 billion in sales with $355 millon profit in the first nine months of 2010. If we extrapolate that, crudely assuming no revenue growth in the last 3 months, we come to 2020 earnings of $1.6 billion and roughly $450 million profit.

So Facebook has to grow revenues and profit by a factor of five, based on the same ratios as Google, to achieve the $50bn valuation. Where could this come from?

Advertising revenue

The bulk of Facebook’s current revenue comes from advertising, according to Inside Facebook in 2009 all but $10million of their $660 million earnings came from one form of advertising or another.

Online advertising is going to continue to grow spectacularly, a 2010 Morgan Stanley research paper illustrated (on slide 25 of the previous link) how advertisers will have to increase spending onling by $50 billion to match the Internet’s share of media consumption.

It’s a fair assumption that Facebook, as the biggest social medial platform, will get a large slice of that $50 billion. If Facebook were to capture 10% of the market’s growth, they’d achieve their valuation easily.

We should also consider that most of Facebook’s revenue is coming from the United States and they barely touched international markets, so there’s even more potential growth in their advertising revenue.

Games revenue

One of Facebook’s biggest growth opportunities comes from the games. Games like Farmville and Mafia Wars are proving popular with the user base; Zynga, the developer of Farmville, itself has a projected market capitalisation of $5.8 billion.

The global games business is valued at $105 billion dollars and much of this market is moving to web based, online platforms. Should Facebook based games grab 10% of that market, the platform’s 30% cut would see another 3 billion go into Facebook’s revenue, most of which would be profit.

The credits market

Related to the games market is the sale of credits for purchases of games and other features like virtual, and real, gifts and products.

It’s almost impossible to quantify what that market would be but already credits have gone on sale in US stores like WalMart and Best Buy and the virtual world site Habbo Hotel reports 2010 credit revenues of 4.5 million Euros on a user base that is a fraction of Facebook’s size.

So is Facebook worth $50 Billion?

Facebook’s fifty billion dollar valuation is feasible. That’s not to say there aren’t risks, it’s possible Facebook could turn out to be another fad like Myspace or that users might decide to value their privacy over Facebook’s benefits.

While it’s not an investment you’d like to see your grandmother in as a safe source of retirement income, for risk tolerant Russian fund managers and high income clients of Goldman Sachs, it’s a punt worth taking.

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What businesses should learn from Wikileaks

Cablegate forces us to question computer security and the stability of the Internet

The Wikileaks Cablegate affair has been entertaining us now for two weeks as we see diplomats and politicians around the world squirming with embarrassment as we learn what US diplomats really think about the foreign powers they deal with.

Both the leak of the cables and the treatment of Wikileaks and its founder, Julian Assange, by various Internet companies raises some important questions about the Internet, cloud computing and office security in the digital era.

Security

It’s believed the source of the leaked cables is Private First Class Bradley Manning, who is alleged to be responsible for leaking the Iraq tapes released by Wikileaks earlier this year.

The lesson is don’t give junior staff unrestricted access to your data, access to important information such as bank account details, staff salaries and other matters best kept confidential needs to be protected.

You can stop data leaving the building by locking USB ports, CDs and DVDs through either software or hardware settings on your computers and you should ask your IT support about this, keep in mind that locking down systems may affect some of your staff’s productivity.

Locking the physical means though doesn’t stop the possibility of data being sent across the Internet and access logs may only tell you this has happened after the fact. So it’s important to review your organisation’s acceptable use policy. Check with your lawyers and HR specialists that your staff are aware of the consequences of accessing company data without permission.

Incidentally, the idea that Pfc Manning was just one US Army staffer of thousands who were able to access these cables raises the suspicion that the information Wikileaks is now releasing was long ago delivered to the desks of interested parties in London, Moscow, Tel Aviv, Beijing and cave hideouts in remote mountain ranges.

Don’t rely on one platform

Wikileaks found itself hounded from various web hosting and payment providers. As we’ve discussed previously, relying on other people’s services to deliver your product raises a number of risks. Make sure you have alternatives should one of your service providers fail and never allow an external supplier to become your single point of failure.

Concerns about the cloud

This column has been an unabashed fan of cloud computing, but the Wikileaks saga shows the cloud is not necessarily secure or trustworthy. Not only is there the risk of a PFC Manning working at the data center compromising your passwords or data, but the arbitrary shutdown of Wikileaks’ services is a stark lesson of relying on another company’s Terms of Service.

Within most terms of service are clauses that allow the provider to shut down your service if you are accused of breaking the law or straying outside of the providers’ definition of acceptable use. As we saw with Amazon’s treatment of Wikileaks, you can be cut off at any time and without notice.

Amazon’s shutting down of Wikileaks is a pivotal point in the development of cloud services. Trust is essential to moving your operations to the cloud, and Amazon’s actions shown much of that trust may be misplaced.

Should you be considering moving to the cloud, you’ll need to ensure your data and services are being backed up locally and not held hostage to the arbitrary actions of your business partner.

Don’t put your misgivings in writing

So your business partner is a control freak? Great but don’t put it in writing.

Be careful of gossip and big noting

One interesting aspect of Wikileaks to date is how senior politicians like gossip and showing how worldly they are to US diplomats.

That’s great, but it probably isn’t a good idea to tell your best friend they should consider beating up your most important customer. As mentioned earlier, this little gem was probably on polished desks of the Chinese Politburo long before the cables found their way to Wikileaks.

Resist the temptation to gossip, remember your grandmother’s line about not saying anything if you can’t say something nice.

Ultimately what Wikileaks shows us is all digital communications are capable of being copied and endlessly distributed. In a digital economy, the assumption has to be that everything you do is likely to become public and you should carry out your business conduct as if you will be exposed on Wikileaks or the six o’clock news.

Wikileaks is a lesson on transparency, we are entering an era of accountability and the easiest way to deal with this is to be more honest and open. That’s the big lesson for us in our business and home lives.

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Other peoples’ platforms

The risks in the privately owned web range from obscure terms of service to arbitrary payment problems. This is why you need to control as much of your business’ online presence as possible.

“We have successfully established an online business, but we have run into problems with Ebay (indefinite suspension – unfairly I might add)” wrote Ralph*, an old client.

“We are pretty desperate, as this is now our sole business and we are now without an income.”

The Privately Owned Web

Ralph’s problem is typical of thousands of businesses that rely on one Internet service. Some months back we looked at “Nipplegate”, the story of a Sydney jeweller who had her Facebook page closed down because of her anatomically correct dolls.

All of these services are privately owned with their own terms and conditions along with their own corporate objectives. If you choose to use their product, you have to follow their rules – just like a shopping mall management can order you off their premises because they don’t like the colour of your socks.

The most glaring example of this is Wikileaks where Amazon, Paypal, Mastercard and Visa all threw the whistleblower site off their services for allegedly breaching their terms of services in various obscure ways.

The Terms of Service Trap

A business’ Terms of Service usually feature clauses wide enough to catch even the most honest and diligent business, this is by design as it gives management the excuse to throw anyone who makes their lives difficult, which is exactly what has happened with Wikileaks.

While Ralph’s problem is nothing like the scale of Julian Assange’s, all of these stories illustrate the dangers of relying on one service for your livelihood. Should that service change the way it operates, then any business that relies on that could be broke in hours, as many businesses that rely on Google search results have found.

Most of the Internet is not a public space, almost all of it is privately run along similar lines to that shopping mall or a walled estate.

Ralph and Julian Assange have shown us the limitations and risks of the privately operated web. As citizens and business owners we have to understand these corporations’ objectives are not always the same as ours and make judgements on how we live with the risk of finding ourselves in breach of a Term of Service in our business or personal lives.

We’re still in relatively early days of the net and all of us are still learning. One lesson is clear though, we can’t allow our livelihoods to be held hostage by a small number of big technology companies. Make sure you have alternatives to your online channels.

*Ralph is not his real name

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the new gatekeepers

Are four powerful online empires developing?

As the net matures, are we seeing a new phalanx of gatekeepers gathering to complement the old ones?

Four companies striving to control great parts of the Internet economy; Google in the search market, Facebook for social media, Amazon in e-commerce and Apple in mobility.

Of the four, Apple seems to be the furthest along this path as the iTunes store coupled with the market take up of iPad, iPhone and iPod combination are beginning to dominate the mobile device segment of the Internet.

This is illustrated by two stories in recent days; the first is News Corporation’s deal to develop a dedicated iPad “newspaper” and the other Robert Scoble’s description of how Application developers are increasingly focused on the Apple platform.

The telling part of Scoble’s story is where he speculates how the tech media could be being rendered irrelevant by Apple’s control of the iTunes store, he goes on to say;

“Do app developers need the press anymore?

They tell me yes, but not for the reason you might think.

What’s the reason? Well, they suspect that Apple’s team is watching the press for which apps get discussed and hyped up.”

Scoble’s article is interesting in how Apple’s dominance of the distribution chain allows them to bypass other media channels; why go to Facebook or Google, let alone your local newpaper to find out what the hottest new apps are?

Even more fascinating is how Apple’s control of its distribution channels ties in with its dominant hardware platform, this is the online equivalent to one company owning the paper mill, the presses, the trucks and the news stands then forcing every magazine and newspaper publisher to work them.

It’s instructive that despite the real risk that Apple could end dictating all terms to those who rely on iTunes as their publishing platform, newspaper publishers are locking themselves onto this world. This is despite the publishers spending the last two decades shoring up profitability by reducing margins to their news sellers and delivery agents.

Despite these risks, News Corporation isn’t holding back after Rupert Murdoch described the iPad as “a fantastic invention”, across the empire various outlets are promoting their iPad applications, including the New York Post, London Sun and the Sydney Daily Telegraph.

It will be very interesting to see how this alliance between an old and a new media empire will turn out.

Meanwhile the new empires are jostling each other where they meet, Google’s latest spat with Facebook over data is just one of many skirmishes and we can expect to see many more as the big four explore the boundaries of their businesses.

The real question for us is how do we see ourselves working with these empires. Will we reject them, or will we accept that doing business with Facebook, Google, Apple and Amazon is the easiest way of getting on with our online lives?

If it’s the latter then we’ll have seen the old gatekeepers of the media, retail and communications simply replaced by new, bigger toll collectors.

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Twenty Internet rules for politicians

The web and social media is changing politics just as TV did which means new rules for politicians

In the 1960 US Presidential race, Richard Nixon’s campaign was thrown off course when his team misunderstood how the new medium of television worked from politicians. Today’s political candidates are facing the same challenges with the Internet and social media.

Social media and the internet are great platforms for politicians to talk directly to their constituents without going through the filters of mass media however there are risks for the clumsy and ill-prepared.

The main risk for politicians, and businesses, is the Internet increases accountability and magnifies gaffes; a mistake in a remote town that may not have been noticed by the press ten years ago can today be the lead story on the national evening news thanks to an audience member with a mobile phone.

Social media increases that accountability as every tweet, Instagram post or Facebook update is effectively a public statement making these services powerful tools that need to be treated with respect.

1. You’ve put it in writing

As soon as a tweet, update or email is sent or published, it’s in writing against your name. Once you’ve posted it, it’s impossible to deny it – don’t even think about using the lame ‘my computer was hacked’ excuse. So don’t put on the Internet what you wouldn’t write in a letter or memo.

2. Everything you do online is permanent

Even if you delete an email, tweet or blog post after sending there will always be a copy somewhere. Nothing on the net is ever completely deleted and if it’s in the slightest bit controversial assume someone will make a copy. Think before pressing send.

3. All online comment is publishing

Prior to the Internet, publishing involved owning or hiring a printing press, radio station or television studio. Today anyone with a PC, tablet computer or mobile phone is a publisher. Every time you press “submit” you are publishing a comment with all the same potential consequences as writing an article or campaign flier.

4. Off line rules apply online

Many people on the net have the idea rules don’t apply online. Those people are wrong, defamation and electoral rules apply online as much as they do offline. What’s more, the Internet magnifies errors and dishonesty. Even if you haven’t strictly broken the rules, you still may find an ethical lapse could sink your campaign.

The difference when you do it online is that the record is permanent and available world wide, that’s why it’s called the World Wide Web.

5. The net makes copying easy

In a digital world, all content is endlessly reproducible, so your material can be copied, altered and distributed easily. This was a lesson learned by a bunch of London lawyers ten years ago. Learn from their mistakes and use it to your advantage.

6. Nothing is off the record

Everything you write on the Internet is on the record; an offhand Twitter comment is just as official as a press conference statement or media release. So keep the smart comments off line. If you’re going to be rude about someone, don’t put it in writing on the net even if the message is supposed to be private.

7. Online private and public domains are blurred

While there are private channels on the Internet, the boundaries between them are not always clear. For instance a Facebook group can be seen by anyone who is a member, so postings in that group can be passed on from there.

It’s also easy to make mistakes; a private Twitter message could go public if you hit the wrong key. There’s no shortage of horror stories where people have been included on email messages that were never intended for them.

Assume everything sent on the Internet can potentially become public.

8. Be transparent and consistent

As a research tool, the Internet gives media, the voters and your opponents the opportunity to quickly verify every statement you make.

If you are going say the dollar collapsed when your opponents were in government, check this really did happen. If your party promises a can of baked beans in every household then details of The National Baked Bean Access Program have to be online.

9. The Internet loves a vacuum

Should you leave questions unanswered, or if you make an empty promise with no supporting information, then you’ll find no shortage of people on the net willing to fill the blanks for you. Leaving people guessing is the quickest way to get an issue spinning out of control.

10. Be careful of delegating

It’s tempting to give the job of social media expert to the youngest staffer or volunteer in the office, however you are responsible for everything written. So if you delegate, think carefully. Blaming an over enthusiastic intern or contractor is rarely a good look even if it is true.

A good example of this was Hugh Jackman’s Sydney Opera Center gaffe which was clearly a Tweet from someone who wasn’t Australian. While for Hugh it was a minor embarrassment, a similar trivial mistake could derail a political campaign or career.

11. Think before you tweet

The best measure for posting on the internet is never to say anything you’d be embarrassed to explain to your mother. In a political context, don’t say anything you’d be uncomfortable justifying to your party leader, whip or the host of a radio talk back program.

12. Engage with your audience

You need to be adding value, while mediums like Facebook, YouTube and Twitter are quite effective for getting out prepared material, that isn’t using those channels to their full potential.

The word “social” in “social media” indicates how these services have become communities where people exchange views and participate. Your Facebook pages and Twitter streams should be engaging voters and acting as a rallying point for supporters. Think of them as a virtual 24/7 town hall meeting.

13. The net is a big playground

The Internet is a perfect democracy. Everyone who chooses to participate has a voice.

This means the informed, engaged and intelligent have an equal voice with the ignorant, deranged and obsessed. While it is important to listen to what the lunatic fringe have to say, you don’t have to engage with them.

14. You are judged by your company

Be careful of joining online groups or being too closely associated with individuals who may be an embarrassment. Facebook is particularly bad for this as you’ll get many offers to join groups. Resist most of the invitations as even the funny ones could backfire.

15. Play nice with the trolls

On the net, you should never get into a fight. As the saying goes; “never wrestle with a pig; you both get dirty and the pig enjoys it.” The same applies with internet trolls.

The Internet is the greatest invention for idiots, giving them a forum to exercise their ideas and find like minded fools. Don’t join, argue or engage with them, you’ll only encourage them.

16. Don’t get clever

One thing the Internet doesn’t do very well is humour, sarcasm and irony. So be very careful with the smart comments as what would be a funny off-hand line at a press conference or walk around could be totally misinterpreted online.

Another problem is context which is easily lost on the net; be careful with statements that could be taken poorly by those not aware of the surrounding circumstances. This is particularly true with Twitter where it can be difficult for bystanders to understand the entire online exchange.

17. The web is worldwide

There’s no such thing as an intimate chat online. Everything you do could be passed on. You may only have a thousand Facebook friends or Twitter followers but if each of them has a similar following, that’s an immediate audience of a million people. Treat each tweet, post or update as if it is going out on the Morning Show or 7.30 report.

Similarly, some political organisers think the web is best for rallying the troops. That’s a dangerous idea as many teenagers have discovered when a horde of gatecrashers have turned up to their Facebook advertised parties. Your political opponents are probably taking as much interest in your posts as your supporters.

18. Don’t deceive

The New Yorker once said “on the Internet no-one knows you’re a dog.” So it’s tempting to set up anonymous accounts and webpages to discredit your opponent or derail their campaigns.

In reality, your posts in dog food forums will probably give you away and all but the most sophisticated hoaxer will leave clues in their digital footprint. Even if you cover your tracks, being mischievous can bring you unstuck.

You need to also keep your volunteers and staff aware of this; by all means let them engage, promote and defend your positions but make it clear that underhand and childish stunts will hurt more than help if they are exposed.

19. The net does not replace other channels

The digital natives will tell you old media is dying and only the Internet matters while older comms people will mutter darkly into their drinks about the net being over rated as a tool. Both are wrong.

Mainstream media and the Internet increasingly rely on each other as sources and distribution channels. Tools like Twitter help journalists find sources and spread stories while the news papers and TV shows provide material for Twitter and Facebook users.

Where the Internet works particularly well is enhancing the “traditional’ channels of community meetings, media appearances, fliers and articles.  What you can’t say in a 15 second TV ad or 500 word article can be expanded on and enhanced online because you aren’t subject to other peoples’ restrictions and guidelines.

20. Experiment and learn

In a risk adverse world it’s easy to ask why you should bother with the Internet as most voters are still getting their information through mass media and advertising spending is still largely used for broadcast ads.

The reason you need to be on the Internet is because your constituency has moved online and the broadcast journalists are online. You need to be listening to them and to understand how issues are developing and how these channels are being used.

As these tools develop, they are going to become more powerful. The politician who ignores them today and misunderstands how the medium works could find themselves being remembered in the same way Richard Nixon was in 1960.

Our society is increasingly using the Internet to debate and develop new ideas. If you hope to be part of those ideas, you need to be part of the debate.

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The downside of social media marketing

Social media is a great business marketing tool, but it has downsides as a Sydney jeweller learned

Until last Sunday, Facebook was working well for jeweller Victoria Buckley; the page for her store in Sydney’s upmarket Strand Arcade was generating sales and had a rapidly growing fan base from around the world.

One of the key parts of her marketing campaigns are porcelain dolls made by the Canadian designer Marina Bychkova. Her classic doll Ophelia features in the window displays, on posters in the store and on the shop’s Facebook page.

Ophelia is a little bit different to most dolls in that she’s naked and anatomically correct — she has nipples.

Last weekend Victoria received six warnings from Facebook about “inappropriate content” on her page. There was no indication of which images or text broke the rules or what would happen to her page if she took no action.

“The frustrating thing is I can’t pinpoint which images” says Victoria, who goes on to point out that over the year she’s used Ophelia in her marketing, including two large banners in the busy shopping precinct, she’s received no complaints.

“It’s all a bit arbitrary”, says Victoria “it only takes one anonymous person to click on the flag content button and there’s a problem”. Earlier this year her Flickr account was set to restricted because of Ophelia’s nudity.

To avoid problems, Victoria has blacked out any potentially inappropriate parts of Ophelia on the store’s Facebook profile and started a “Save Ophelia- exquisite doll censored by Facebook” group until she can resolve the issue.

But here lies another problem; she can’t find a way to contact Facebook. “It’s become an increasingly important part of the business” Victoria says of the Facebook page and “I just don’t know what’s going to happen to the site”.

Right now Victoria has no idea what is going to happen to her business’s profile. As she can’t talk to Facebook, she’s uncertain of the page’s future.

This uncertainty illustrates an overlooked issue with social media sites. All these services are proprietary, run by private organizations to their own rules and business objectives.

In many ways, they are like private mall owners. They are perfectly entitled to dictate what merchants and customers can do on their premises. If you don’t like it, you have no recourse but to take your business elsewhere.

As consequence these sites have a great deal of control over your online business, a lesson that’s been hard learned by many eBay and PayPal dependent Internet retailers.

A good example of what can go wrong are the Geocities websites. Ten years ago Geocities was a popular free hosting site used by many micro businesses and hobbyists. Just over a year ago the now parent company Yahoo! shut them down and all the data on them has been lost.

By relying another company’s Internet platform, you are effectively making them a partner in your business. That’s great while things go well, but you have to remember their business objectives and moral values are different to yours.

This is why a business website is essential; your traffic and all your intellectual property is too important to sit on another businesses’ website with all the risks that go along with that.

The lesson is that while using Facebook, Twitter and other Internet services are an important part of the business marketing mix, your business needs the security of its own website and all your marketing channels, both online and offline, should point to it.

Fortunately Victoria’s across that, she’s pointing her Facebook fans to her website telling them, “You can join my independent mailing list at this link, in case they get really stupid and close this group.”

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