Posts from February 2008

I received a few private emails yesterday on my facebook spam filtering post.

And what I took away from all of them is that social networking viral marketing is like email but not identical. Email is in some ways simpler. Either the message gets through or it doesn’t.

Viral marketing in a social network is more complicated as there are multiple dials you can play with in a viral marketing program. Facebook implicitly recognizes this in that they have to regulate both notifications in the news feed and invites. Over time there will be more ways to get viral adoption in a social network.

And so the binary decision, let the mail through or not, is not what’s going on. Yes, it’s all about reputation, but no you can’t simply whitelist or blacklist an app based on reputation.

Facebook needs to take a carrot and a stick approach to this problem. They should absolutely punish apps that have bad reputations. But they should also reward apps that have good reputations. Decrease the virality of apps of bad reputation and increase the virality of apps with good reputations.

As I said in my post yesterday, Facebook has been evolving the rules of the game for the past six months and they are getting better and better at this. I expect they’ll continue to innovate and I hope that they’ll implement some kind of reward system.

I really wanted to use another word to end that headline but I am trying hard these days to keep this blog clean.

Anyway, one of the many things I’ve learned the hard way is that irrational valuations can come back to haunt you. It feels so good when someone says a business you own a big piece of is worth some huge number. But unless you cash out at that price, it’s not much more than a tease. And it can come back to hurt you in many ways. The thing you must know about financial markets is they are irrational at times, but they are rational in the end.

Microsoft may have inadvertently set off some serious asset inflation that may now come back to haunt them. As most everyone knows, they paid a $15bn valuation for a small minority investment in Facebook last year that included a business deal to rep a significant amount of Facebook’s advertising inventory. Silicon Alley Insider and Kara Swisher report that Facebook’s financials look like this.

2007 Revenue:    $150 million
2008 Revenue:     $300-$350 million
2008 EBITDA:      $50 million

So Microsoft valued one of the two leading social networking companies at 50x revenues and 300x EBITDA.

What message do you think that sent to Rupert Murdoch and News Corp? I’ll answer my own question. It told Rupert/News Corp that myspace (the other leading social net) was worth north of $15bn. I don’t know what myspace’s financial numbers are (if you do, please leave them in the comments). But here’s a guess.

2007 Revenue:   $500-600 million (considering google pays $300mm/year)
2008 Revenue:   $625-750 million (25% growth)
2008 EBITDA:     $50-100 million

If you apply the Microsoft/Facebook multiples to myspace, you get a business worth between $15bn and $30bn.

Now many think that myspace is not worth as much as Facebook and that Rupert/News Corp is trying to sell it at the high. I am not nearly as down on myspace as most people are right now. They have an audience that is different than Facebook’s. They have a very active music thing going on. They are about to launch a third party app platform that every major Facebook app developer is going to be on. That may very well supercharge myspace’s growth in 2008 the way Facebook apps drove Facebook’s growth in 2007.

I am not saying that myspace is worth between $15bn and $30bn . But I am saying that if you overvalue Facebook, you are also overvaluing myspace. And when the company you want to buy uses a myspace overpay to make itself less interesting to you, then you are the one who gets screwed.

What goes around comes around.

Happy Valentines Day Everyone. 

My gift to you is my loved tracks on Hype Machine. 

Everyone can use a little love today. 

I am a big fan of using reputation as the central measure of spam. Reputation means many things to many people, but I am using the word in the context of an aggregated measure of many inputs taken together to establish a message senders’ reputation. That’s how a company I’m invested in, Return Path, does it. They are the leader in email whitelisting and deliverability. Their premise is simple. Measure every known mail sender’s (ip address) reputation based on a slew of inputs, including complaint rates, unsubscribe compliance, e-mail send volume, unknown user volume, security practices, identity stability, etc and create a Sender Score. Once you know a sender’s reputation (sender score), you can provide a host of services to mail senders and recipients that help both sides make sure that users get the mail they want and don’t get the mail they don’t want.

Facebook is mimicking that approach with the viral marketing channels in its Facebook platform. Inside Facebook reported yesterday that Facebook has rolled out a reputation system that dynamically determines how many notifications and invitations a Facebook app can send per user per day. Right now, it’s relatively crude and relies upon the following items:

• Your historical invitation acceptance rate
• Whether your application overrides the user’s choice to invite no friends, but instead forces users to invite friends
• Additional undisclosed factors that “reflect the affinity users show for the application as a whole”

Like everything Facebook does, this system will evolve and get better and more sophisticated. But the bottom line is this. If you use best practices, play by the rules, don’t upset users, and deliver percieved value, you’ll get to send more. If you don’t, you’ll get to send less.

I think this is a very smart move by Facebook that will result in a better experience for everyone.

Fundamentally, I’m going to argue that consumers download music, as
much to derive extra value from getting something for free, as they do
because they want insurance against buying something they didn’t want
in the first place. File-sharing is as much about risk-sharing as it is about the ‘theft’ of value. Technological changes have made this possible
– but the way the business model of the music industry is at odds with
the implicit contract it signs with listeners is what makes it probable.

If you want to read the whole thing, click here.

I read Joe Nocera’s column last weekend about J. K. Rowling’s efforts to control everything related to her Harry Potter novels. I understand that she created the characters and the story. And I understand her desire to control everything that is done with that intellectual property. But I wonder if she was inspired by anything she read in the creation of the Harry Potter series. Were any of her characters based on people she knows or things she read? Did she ever read anything about witchcraft or wizardry that got her mind working on what became Harry Potter?

Keith Richards once said that rock and roll was simply white musicians copying black musicians. I believe that almost everything we do in life is inspired by what someone else did before us. And so allowing people to tightly control their artistic works is going to lead to less creativity not more. There have to be limits on how tightly we allow creators to control their intellectual property.

I was at a meeting yesterday and the person we were meeting with started off the meeting showing us this video which has been on YouTube for over a year now.

So this morning I went to find the video so I could show it to my family. And I noticed that the voice seemed to be Will Ferrel’s. So I did some more YouTubing and came up with this.

As funny as the Will Ferrel piece is, I think you’ll all agree with me that the kid’s mashup is way funnier. That kid is part of a generation that grew up in world where most content is digital and mashable. His generation will do amazing things with mashups. I hope our legal environment is structured  appropriately.

I have gradually moved a lot of stuff off of this blog. The personal stuff and photos have largely moved to tumblr. The music posts continue from time to time, but the daily mp3 posts have moved to fredwilson.vc (but are still available via the player on the upper right). I’ll still occasionally post about a hyperlocal event and I still post about our trips here (but some of that has moved to tumblr too). And the short bursts have moved to twitter.

The one thing I haven’t moved is my political thoughts. When I first started blogging, many people suggested that I shouldn’t blog about politics. They told me the comments would be nasty, mean, and hurtful. They were right. But I kept doing it and recently, you’ll note that I’ve been doing it a lot.

There is still the occasional nasty comment (which I’ll usually ask to cool it). But by and large the comments are amazing.

Just yesterday, I got to witness a fascinating discussion between my friend and fellow Hillary fan, Tom Watson, and a host of other readers who are Obama supporters on some important issues facing Obama.

To be honest, I don’t spend my day reading real clear politics and the NY Times and WSJ opinion pages. I can’t keep track of each and every issue that is out there in a political campaign. But I am interested in them and I am particularly interested in what every day people think of them.

I don’t know how many comments my political posts have recieved in the past month (I could go count them but I am pressed for time right now). I suspect at least a couple hundred and probably well north of that. These are the thoughts and opinions of smart, educated, and informed people who care enough about politics to wade into the comments and spend time leaving their thoughts.

I am blessed to be able to read all of them every day. It has made me a better citizen, voter, and blogger. Thanks everyone and keep them coming.

A couple years ago, we put up a blog post on the Union Square Ventures weblog and said that we wanted to hire an analyst. The deal was simple – no phone calls, no resumes, no emails – just a link to your web presence. We hired Andrew as a result of that effort and it was a great fit for everyone.

So we are doing the exact same thing again.

If you think you’d like to work for Union Square Ventures as an analyst (it’s a two year rotational gig, not a long term hire), then visit the blog post and leave a comment with a link to your web presence and we’ll take a look.

If you are thinking about building a web service, take the advice of Seth Godin. This is from his post today on rethinking what an auction can be.

my point is that this is just the beginning of using internet tools to
change the world we interact with, as opposed to trying to make it easy
to interact with the standard world using the Internet

Marc Andreessen said this about web 2.0 last year:

what we have seen over the last several years is the Web itself coming into its own.

After an initial phase of the Web as a medium, in which lots of people attempted to make the Web look like a newspaper, or a magazine, or a TV channel,
we as an industry have recently been collectively developing a much
clearer idea of what the Web is really like as a medium in and of
itself.

This has led to broad realization of a set of design patterns for how Web services and Web companies often get built and used.

Which is great.

Exactly. But as Seth said, it goes even farther. The web is changing the world we live in. And we have the tools to change it even more. Way more. That’s what we have to do.