19
Feb

Facebook adds to its success as a leading medium for online advertisers

2-Color-Design-Hi-Res-100px-widthA couple of articles published recently point to further gains by Facebook as a leader in the media market for online advertisers. The first of these, titled Why Google Should Fear Facebook’s New Product Ads, which was written by Garrett Stone and published on the AdWeek web site, reports on some comments from Tamara Gaffney, who is a Principal Analyst at Adobe Digital Index, about Facebook’s decision to debut a product ad offer.

The key takeaway, for me, in Gaffney’s comments was the ranking she gave to Facebook’s analytics: “Facebook has the best targeting capabilities”. If this is truly the case, then it should not be much of a stretch (for anyone interested in just how organizations of all types can capture the highest value from online content publishing) to see the diamonds to be had from online chatter. This kind of press should provide further incentive to stakeholders in enterprise technology to work harder to refine so-called “big data” methods of containing, and then analyzing both text and binary data.

The second article appeared in Direct Marketing News. The title of this one is Salesforce Becomes Facebook Marketing Partner and is written by Al Urbanski, a Senior Editor for the publication. The significance of a decision of this magnitude by Salesforce should not be underestimated. If they see a much better opportunity mining online chatter from Facebook pages (in complete conformance with what look to be very high standards at Facebook Marketing Partners) and leveraging the other features of the program, at the same time, then Facebook is likely onto something big.

One more point on the comments made by Gaffney from Adobe Digital Index: If Facebook truly “has the best targeting capabilities”, then the social media architecture underpinning its online presentation is very likely to be a key contributor to its success. Somehow Google + is not hitting the mark. This lesson is not likely to be lost, once again, on enterprise computing stakeholders looking to incorporate “big data” and unstructured text data into the information they target for analysis.

Perhaps another entity listening to these messages is Facebook, itself. Why else would they throw substantial resources behind their own Facebook at Work, enterprise social computing effort?

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2015 All Rights Reserved

5
Feb

Investors buy up shares of prominent social media ISVs despite slowing user growth

2-Color-Design-Hi-Res-100px-widthPerhaps investors are changing their taste in prominent social media ISVs. Could the search for a telltale sign of promise have shifted from substantial growth in users to what may be a meaningful increase in revenue? From the after hours trading experience of LinkedIn and Twitter on February 5, 2015, it would appear to be the case.

Twitter and LinkedIn both reported solid revenue growth in the quarter ending December 31, 2014. But in the case of Twitter this plus was offset by anemic growth in the number of active users. Tiernan Ray wrote in Barrons: “[Twitter] said its monthly average users (MAUs) rose 20%, year over year, to 288 million from 284 million in the prior quarter. That was down from a rate of 23% growth in Q3. Of those MAUs, 80% were on mobile devices, about the same as the prior quarter.”

Hannah Kuchler of the Financial Times also remarked on management’s forward-looking guidance, “that was above the average analyst forecasts”.

Investors looked like they liked what they were hearing and reading. Twitter’s share price was up over 10% after hours.

LinkedIn shares were also up substantially, approximately 6% above the close. The quarterly earnings report included very similar highlights: substantial growth in revenue. But I found a different nugget: Maria Armental wrote in the Wall Street Journal:“The professional social network, which this month launched a localized version in simplified Chinese and traditional Chinese that has nearly doubled its Chinese member base to more than 8 million, said nearly 70% of total members come from outside the U.S.” Eight million users is certainly not a very big number for the country with the biggest population in the world. But LinkedIn is succeeding (as Apple is also succeeding, though in a much bigger way) in a market that continues to elude Microsoft and curiously enough Google (Android).

As a user I must attest to a much more promising experience from my efforts with Twitter than has been the case for how I have worked on my LinkedIn profile. I make a lot of use of Twitter’s Analytics. As my tweets have magnetized more impressions there has been, over time, a substantial increase in the page views of this blog. But perhaps the best result of all has been a growth in our following on Facebook. But I will write more on this point in a later post.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2015 All Rights Reserved

11
Nov

Marketers look to be succeeding with customer data and have pressing needs to consume more

During Facebook’s Q3 2014 Earnings Conference Call, Mark Zuckerberg, CEO reported $3.2 Billion gross revenue for the quarter, and a 64% year over year increase in their advertising business. In contrast, Google, as Patrick Pichette, Senior Vice President and CFO reported during its Q3 2014 Earnings Conference Call, experienced merely a 20% year over year increase in total revenue from its Sites business and only a 9% year over year increase in its Network revenue.

So it looks like a fair question to ask what’s up at Facebook? From a teaser summary this writer found on the web site for MIT’s Sloan Review, titled How Facebook is Delivering Personalization on a Whole New Scale, Blake Chandlee, Vice President of Global Partnerships at Facebook pointed to customer data as a very valuable asset Facebook has, apparently, learned to monetize much more successfully than Google.

Customer Data includes “[o]nline [c]hatter” (quoted from another short summary on the MIT Sloan web site, this one titled “Online Chatter is Big Data Gold”. The short piece was written by Leslie Brokaw and published online on October 27, 2014). Online Chatter is the stuff users produce when they post to alerts, interact with friends, etc on Facebook. All of this takes the form of unstructured data, which, in turn, has to be manipulated and given shape with tools developed for the big data trend.

The tools are not the subject of this post. Rather, what this writer finds to be important is how Facebook’s reported growth is emblematic of the success its customers have achieved using this “online chatter” to their advantage. Unstructured data, precisely as the MIT Sloan precis presents it, is becoming a very valuable asset.

One can argue this trend is not new. As far back as year ago, ostensible Facebook competitors AT&T and Verizon were said to be jumping into the same market (interested readers may want to check out an online article titled AT&T joins Verizon, Facebook in selling customer data). But not all customer data is the same. It isn’t likely either Verizon, or AT&T can produce the same treasure chest of “online chatter” to rival Facebook.

But Twitter certainly can and appears to be moving in the right direction with an announced first partnership with IBM. We just published a post to this blog yesterday on this announcement.

Google certainly has an enormous repository of a type of unstructured data in its GMail service. Assuming they have access to a comparable capability to anonymize the data, then, one might argue, they are prepared to go toe-to-toe with Facebook. But the contrasting sales growth numbers from the two quarterly reports mentioned at the top of this post point to a looming problem for Google — email just doesn’t seem to be producing as useful a set of customer data. How else to interpret the differences in growth? Pity Google + is not doing better. Google + failure is a big deal and likely to emerge as a major obstacle Google will need to fix.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

30
Jun

Gallup Poll Results on U.S. Consumer Buying Habits Support a Skeptical View of Social Media Business Valuations

Public companies in the Social Media business (facebook, Twitter, LinkedIn, Google, etc.) have all implemented global business strategies. Nevertheless, some substantial proportion of the business plans for each of these businesses, over the next near term, depend on sales to advertisers for the U.S. consumer markets. But the results of a Gallop® report on the buying habits of U.S. Consumers, published on June 23, 2014 may point to excessively optimistic revenue forecasts in these plans, and, in turn, even more inflated business valuations than previously appeared to be the case.

Here are some important points coming out of this report:

  • 62% of a cross section of respondents to the survey reported Social Media had “No influence at all” on their purchasing decisions. Two caveats on this statement should be noted: 1) the numbers of respondents from each of four groups — “Millennials”, “Generation X”, “Baby Boomers”, “Traditionalists” — are not included in the article about the report, which is now widely available to the public (a link to the article is included in this post) and 2) despite a landing web page for the report, itself, the landing page does not offer the visitor any access to the report, so it is not possible to explore the report, at least at the time this post is being written
  • But this percentage drops to 48% of “Millennials” who responded to this survey. “Millennials” are defined as people born after 1980.
  • Only 5% of a cross section of respondents reported social media exerted “A great deal of influence” over their purchasing decisions. The percentage rises by 40%, to 7% when only responses from “Millennials” are considered.

In Facebook’s 10Q filing with the U.S. SEC, dated April 25, 2014, for the three months ended March 31, 2014, 45% of total global business revenue for the quarter was reported for the United States market, alone. The sources of revenue are clearly defined in this report as follows: “We generate substantially all of our revenue from advertising and from fees associated with our Payments infrastructure that enables users to purchase virtual and digital goods from our developers with applications on the Facebook website.”

Given the claimed results included in Gallup’s report, it might make a lot of sense for investors to recalibrate the cost of an investment in Facebook. In the opinion of this writer Facebook is grossly overvalued, as are most of its peers in this segment. Online advertising is simply better suited to the promotion of tangible items, or intangibles highly dependent on tangible factors, (for example, geographical location) than it is for purely intangible offers.

Since the range of items suitable for online promotion is, therefore, limited, the extent to which valuations have been inflated is even more extreme than this writer previously assumed to the be case.

Disclaimer: I have no current investment in any of the businesses mentioned in this post

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

18
Jun

Facebook Hires the President of PayPal to Run Its Messaging Business

If anyone needed better indication of a solid management team and business plan at Facebook to support its high market valuation, they may have gotten the right message on June 9, 2014, when the company announced David Marcus, President of Paypal would join Facebook as VP of Messaging Products.

For a manager with Mr. Marcus’ stature to join Facebook, one can argue, the quality of the company’s business plan, as well as of its management team has become more compelling. But what may prove to be even more promising about this hire is the indication it provides of Facebook moving to take a commanding position in an otherwise unexpected market niche.

As I wrote earlier in this blog, Facebook appears to be the clear online marketing leader in the mobile market, ahead of Google. But what if Facebook’s long term interest in the mobile market is much more complex than it would, on the surface, otherwise seem to be, and not limited, simply, to online marketing? In other words, what if Facebook wants to win the biggest share of the mobile market to provide space for something else; for example, simply grafting the Facebook way of doing things onto a mobile computing engine, and let it take its own direction?

One can argue the latter objective, while certainly more ambiguous, would, nonetheless, pack a tremendous amount of potential. How to fuel the “Facebook way of doing things” in a mobile computing world? Financial services, of course, provide Facebook with a very wide range of tools to tap resources in a search for a lot of energy. Mr. Marcus will likely bring with him one of the best experience sets any manager could bring to this task. After all, PayPal has outperformed any other merchant services organization, not to mention a large number of commercial banks, for years.

Don’t forget Paypal’s roots as the first method consumers could implement to send payments anywhere. Facebook’s focus on emerging markets, together with its commitment to provide the tools required to transform people not connected to the Internet into paying consumers of networks and the applications running on top of them, makes much more sense with the former head of Paypal at the head of the messaging products business. All together, the addition of Mr. Marcus to the senior management team at Facebook looks like a very smart move and very promising for its future prospects.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

11
Jun

Facebook Acquires Pryte, Deepens Its Commitment to Mobile Data Markets

Despite a couple of highly questionable acquisitions earlier in 2014, Facebook’s acquisition of Pryte, a Finish business with a niche in the Over the Top (OTT) content market, looks to be a very smart move, with a lot of promise.

The news of this merger appeared first on Pryte’s web site. For readers unfamiliar with the notion of OTT, and what it might mean for the mobile data market, I found the following explanation, authored by Dan York and published on the Disruptive Telephony web site to provide a useful definition: What is an Over-The-Top (OTT) Application or Service? – A Brief Explanation.

If I may use a personal example to illustrate the likely attraction of OTT content to the average consumer of high speed data services, I would characterize the level to be very high. Once consumers have the option of consuming digital content entirely in an asynchronous manner, without worries about DVRs, limits on storage, etc, they are not likely to look back. My household went through a Chromecast and is now settled on two Roku devices, which we are using every day, much more frequently than we do the cable set top boxes we also have available.

Pryte’s claims to offer providers of high speed data to mobile consumers a method of monetizing their role as the packet transport provider delivering the application direct to the customer. With Pryte enabled, a Telco like Verizon could opt to charge a premium for a specific OTT content service (for discussion purposes, say Netflix). Should the consumer opt to purchase the additional data, a Verizon running Pryte would also be able to directly assign the additional data to Netflix usage, only.

Of course, by assigning an a la carte purchase to a specific application (Netflix), the consumer is positioned in such a way both the Telco and the application provider (Netflix) can share in the revenue. What is a direct benefit of sharing the revenue? The additional cost of ensuring quality of service from Netflix to the consumer, comes off of Netflix and lands on the consumer. Netflix has already signed deals with Comcast and Verizon to purchase additional data to ensure high quality of service for its subscribers. So Pryte promises some relief to this pain, on both ends.

A lot of early comment on this deal has emphasized how it complements Facebook’s Internet.org effort and provides a method for emerging markets to pay for content as they start to consume data services. Certainly these comments make a lot of sense, but over a longer term. If the Pryte service works, as advertised, mature high speed data markets here in the US, Western Europe, and Japan could, perhaps, constitute an even quicker method of delivering revenue.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

13
May

Now that Facebook Leads in Mobile, Where Does that Leave Google?

According to an article titled Facebook Better-Positioned in Mobile than Google per AppNexus Data, Says Oppenheimer, which was written by Tiernan Ray and published on May 6, 2014 on the Barrons web site, Jason Helfstein, an analyst with Oppenheimer & Co. “reiterates an Outperform rating on share of Facebook (FB) and a ‘Perform’ rating on shares of Google (GOOGL)”.

Mr. Helfstein bases his rating on some data he collected over a “call with ad broker AppNexus”. In my opinion this data is credible (I base my opinion on some points Mark Zuckerberg made during a webcast of Facebook’s latest quarterly earnings conference call. I wrote recently to this blog on these points). But the question of the long term benefit to Facebook of ascending to its new position as mobile advertising front runner, in my opinion, cannot be answered, at least as of yet.

In turn, I do not think it is possible to render an opinion on the question of what the long term impact will be for Google, as a result of this change in market leadership. The analyst community has emphasized the importance for online advertising media to demonstrate an ability to monetize mobile as a separate venue, or locale, for this type of business. But, in my opinion, mobile advertising consumers demonstrate a substantially different behavior pattern than online advertising consumers.

The result of these dissimilar patterns of consumer behavior is some products will benefit from the mobile advertising experience, while others will not. In my opinion the type of product best suited for mobile online advertising media will not bring with it, over the long term, the type of revenue for media players like Facebook and Google, analysts expect.

To put it rather simply, products requiring a considered purchase by consumers won’t play well on mobile devices. So, if Google has been dethroned by Facebook, who really wins and who loses? It is still too early to tell.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

9
May

A Direct Comparison Between facebook and Twitter May Not Be Useful

Analysts often compare facebook to Twitter. But does such a comparison add real value to our understanding of either business, or their industry?

During facebook’s most recent quarterly earnings conference call, Mark Zuckerberg reported “Messenger and Instagram both reached 200 million monthly actives this quarter”. Turning to Twitter’s most recent quarterly earnings report, one finds a claim of 250 million monthly active users. So does it make sense to conclude facebook’s two components, combined, have a far wider reach than Twitter, itself?

I don’t think so. People consume facebook’s Messenger and/or Instagram features for an entirely different set of requirements, I would argue, than is the case for Twitter. Messenger, Instagram, and even What’s App are all targeted to individuals, without the public reach implicit to Twitter.

An important foundation of Twitter’s broader public reach, of course, is the extensive search capability included with Twitter. This capability is not available with either of facebook’s components. Much has been made about the difficulties businesses, and even individuals experience achieving exposure across a wide range of facebook’s consumers. Perhaps the intention is to predicate this exposure on ad purchases. Nevertheless, it is not possible to achieve the same reach with facebook Messenger, for example, as is the case for Twitter. Further, facebook advertisers are not likely to consider Messenger, as a medium, for the same reasons they would consider Twitter.

The challenge for Twitter management, as I see it, is how to craft this reach into a commodity advertisers will be likely to purchase. In comparison, the challenge of maintaining a meteoric growth rate for new viewers to consume Twitter’s content is a less important objective.

But the analyst community is focusing more on the fact Twitter is approaching a viewer plateau, than the steps management is taking to monetize their content. The end result is not much progress on the revenue front and a lot of spurious attention to expanding Twitter’s reach.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

1
May

facebook Looks Like the Leader in Mobile Advertising

I recently wrote to this blog my opinion on the current market valuations of the “leaders” in the online advertising market. In summary, I think each of these businesses is over valued. So why would I care about just who is the leader in the mobile advertising market?

I am not a full time investor. I also offer marketing consulting services. Mobile advertising is a genuine promotional opportunity for my clients. So, from this perspective I retain a high degree of interest in the companies leading mobile advertising.

At present I think facebook is the leader in this market, while Google is playing some catch up. In a transcript of facebook’s Q1 2014 earnings report, Mark Zuckerberg prefaces facebook’s results with a strong statement, specifically on mobile: “We also reached new milestones as a mobile company, with more than one billion monthly actives on mobile and almost 55% of our daily actives only connecting on mobile.” (note: this quote is from the transcript as posted to the Seeking Alpha web site, not from the actual webcast)

So, if these monthly actives are compiled from the daily actives, then facebook is reaching 550 million monthly actives on mobile, only.

It’s difficult to directly compare these results to Google. I couldn’t find this level of granularity on “actives” in Google’s latest quarterly report. But Mr. Zuckerberg’s claim, “And mobile accounted for 59% of our advertising revenue [which, in turn, Mr. Zuckerberg claims grew 82% year-over-year]” (ibid) is much stronger than Nikesh Arora’s comments on mobile advertising for Google. In Google’s latest quarterly earnings report, Mr. Arora noted pricing resistance for Google’s customers considering mobile CPC advertising spends with Google.

facebook’s recent acquisition of WhatsApp promises to keep the momentum going. WhatsApp is a messaging application, complementing facebook’s own Messenger. Both of these applications are high use across mobile consumers.

Finally, facebook’s investment in Internet.org also looks like a strong driver for further momentum as the company continues to mine mobile consumers for more revenue. Mr. Zuckerberg explains: “[b]y partnering with mobile operators in the Philippines and Paraguay, [facebook] doubled the number of people using mobile data with our partners and brought almost three million more people onto the Internet.” (ibid)

Based on these points, together with facebook’s smart phone app and branded smart phone efforts, I’m comfortable calling facebook today’s leader in the online mobile advertising market.

Disclaimer: I have no position, at present, in facebook or Google

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

13
Mar

A Couple of Points Worth Careful Consideration from Mark Zuckerberg’s Keynote Presentation, Mobile World Congress 2014

Mark Zuckerberg’s Keynote Presentation to Mobile World Congress, 2014, is much more of a discussion with David Kirkpatrick of Techonomy than an actual address to the audience. Anyone making a study of facebook will likely want to carefully consider a couple of points Zuckerberg makes during this discussion.

As I wrote in another recent post to this blog, Zuckerberg’s assertion, during this discussion, of a 200% upside potential for further growth in the size of the community of Internet users, world wide, is heartening. If nothing else, this assertion supports the notion of facebook as a real growth opportunity for investors. Assuming facebook supports approximately 1 billion active users, presently, (for the record, I do not think this figure is credible), once today’s Internet audience expands as Zuckerberg thinks it will, then facebook’s audience will be at 3 billion active users, which would constitute an enormous increase in opportunity for any revenue model.

Eighty percent of the world’s population not connected to the Internet already have high speed network options, but are not using them

But when I listened, once again, to the video recording of this discussion, I noticed an important comment by Zuckerberg: in actuality, 80% of the “disconnected” Internet audience can already connect to the Internet (he mentioned 2G and 3G wireless networks already in place for this potential new audience), but choose not to do so.

So how does Zuckerberg plan on convincing the “disconnected” that paying “a few dollars” for an Internet connection is worth it? Internet.org. So how much cash will it take to make this not-for-profit consortium of several businesses working together to promote Internet usage for emerging markets into the express train it needs to become to ferry the “disconnected” along to a connection? Zuckerberg isn’t sure, but it will certainly take a lot of resources (he mentioned $1 Billion of his own money), with not hope of profit any time soon.

Bottom line: the obstacle impeding the Internet “disconnected” from signing up isn’t a lack of data communications network plant, it’s something else. Therefore, analysts will have to reach their own conclusions as to whether or not Zuckerberg’s argument is plausible.

Any Online Service (WhatsApp included) with 500 million subscribers has got to make some money, some how

When Kirkpatrick asked Zuckerberg to explain why it made sense to buy WhatsApp for $19 Billion, he got an answer in 2 parts. The first part amounted to an argument based on fundamental nature: Zuckerberg alluded to the difficulty of online SaaS offers like WhatsApp achieving a critical mass of 500 million users. Given how difficult it is to reach such a plateau, any SaaS achieving this goal has to make some money, some way or other.

Does Wikipedia make money? Does WhatsApp, as it is currently structured, make money? What about Twitter, or Tumblr. Unfortunately the list of Internet businesses with a lot of audience still struggling to survive is too long to list here. I don’t see the logical necessity of a SaaS like WhatsApp making money any time soon.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved