Epic blog post on eve of Facebook’s historic IPO — coming soon

Epic blog post on eve of Facebook’s historic IPO — coming soon

I’ve been planning to devote much of today to writing an epic blog post on the eve of the historic Facebook IPO. But I’m not sure I have it in me — and I’ve got a lot of other things to do as well.

However, if I do write the post, here’s how it will unfold.

First, I’ll establish my (cough) psychic powers in the opening paragraph with a true story. Next, I will guess how Facebook’s stock price will fare in the short and medium term.

But the really exciting part will be in trying to predict how the Google vs. Facebook battle will play out in the longer term — over the next few years.

I will explore Google’s search-based revenue model and how getting a billion users registered on Google+ (even with minimal engagement on plus.google.com) will generate billions more in annual revenue for Google — even if it never places ads on its social network. This is genius.

I will also explore Facebook’s revenue challenges and opportunities. Selling ads around user generated content has always been tough. Especially if your users are “heads down” (not easily distracted) because they are engrossed in meaningful content generated by family and friends. Facebook’s ad click through rates are about as low as you will see anywhere, on any web site.

But Facebook accounts for a significant percentage of all page views on the web. That is an astonishing achievement. They are profitable, growing, and will have a war chest of billions of dollars for acquisitions and to experiment with new possible revenue models. I’ll discuss several ideas that I think Facebook will pursue in the coming years to try to grow into their current market capitalization before the market punishes them too severely.

My conclusion is that I would much rather be Google than Facebook. But I also celebrate the fact that it is a great time to be entrepreneur/developer. Imagine two of the world’s smartest and most valuable companies trying to entice you to build products and services on top of their billion-user social graph. Both companies will be providing awesome APIs, viral distribution opportunities, and monetization options that will help startup companies grow incredibly fast and get to profitability fast as well.

Tomorrow a lot of fortunes will be made when Facebook’s stock trades on a public exchange for the first time. And in the coming months, more fortunes will be made (and lost) as millions of shares trade hands with this stock — which is surely going to be very actively traded and very volatile.

But the bigger story is that in order to win the future, Facebook and Google are building open platforms that will attract huge numbers of developers and entrepreneurs to create apps, attract customers, and build value on top of their social graphs. These entrepreneurs will build fortunes by creating value in the marketplace, not by getting lucky in a volatile stock market lottery.

In the next decade, I expect to see scores of billion dollar companies built (and built quickly) on top of Facebook and Google+. That is where my attention will be in the long run, though I admit that tomorrow I’ll be watching the Facebook stock ticker all day long.


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Hangouts for Entrepreneurs: please take our quick survey and vote for the topic you want to discu…

Hangouts for Entrepreneurs: please take our quick survey and vote for the topic you want to discuss

(And please share this with other entrepreneurs that you know. We need hundreds of responses to make the results meaningful.)

Next week we'll be experimenting with Hangouts for Entrepreneurs. Based on the principles in the books "Love is the Killer App" and "Never Eat Alone," we are going to bring networking and idea sharing among entrepreneurs to a whole new level.

If you don't live in Silicon Valley but want to participate in daily or weekly discussions with dozens of other high-tech entrepreneurs, to share ideas, best-practices, to find technical help, and to find potential business partners for your company, watch this space. Hangouts for Entrepreneurs are on their way.

We'll be recruiting some amazing mentors and guests to help discuss our topics. Years ago I taught entrepreneurship and internet marketing at 2 different universities over 4 years. The secret to my (tongue-in-cheek) popularity was that I invited dozens of amazing guest lecturers–usually the founders of multi-million dollar companies–who freely shared secrets they learned with my students. It was amazing. I was constantly learning from my guest lecturers.

We'll do something similar here, bring mentors right to you via Google Hangouts. But entrepreneurs have to make hundreds of major decisions when starting and running a new business. Sometimes entrepreneurs face questions that more experienced entrepreneurs haven't faced before, because times have changed and the landscape evolves every year. When that happens, entrepreneurs need up-to-date peer advice.

We'll be setting up a format that allows all entrepreneurs to give and receive helpful and timely peer advice — learning on demand — so that entrepreneurs can make better decisions than ever before, about each of the hundreds of choices they have to make in the course of their business.

Please follow this link, fill out our survey, and provide us your email address if you want to be added to our mailing list: http://bit.ly/J3O7xp


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Dallas Fed President: Financial Crisis Will Happen Again

Dallas Fed President: Financial Crisis Will Happen Again

Here’s a 40-second video clip to remind all of us that the largest “banks” are much larger than before the 2008 crisis, and are not only too big to fail, but they are too big and complex to regulate and to manage. http://to.pbs.org/Jf3MgT

[Transcript] “So we know this [financial crisis] will happen again, the question is will the taxpayers be held hostage once more, if we have such concentration within so few hands, again, five banks have 52% of all the deposits in this country. Is that healthy or not? Our thesis in the Dallas Fed is that this is not healthy. It gives them such enormity of scale and complexity that it’s very hard for regulators to penetrate that complexity and I would argue, having been a former banker, in the real world by the way, not just at the Federal Reserve, makes them extremely diffficult to manage, because of their size and their scope.” (Richard Fisher, President Federal Reserve Dallas)

After years of researching this very subject, I’m now working weekly with a small group of informed citizens who are trying to do something about this.

We are hoping to spawn a nationwide social media campaign that will lead to citizens and their representatives becoming far more educated about how the financial system is engineered in favor of these big concentrated casino banks — and simple steps that could be done to change things. (Simple, but nearly impossible now given the billions of dollars of campaign donations and lobbying expenses the financial sector will use to stave off any real reform.)

We are hoping that we can find other like-minded groups and that our collective efforts could lead to the kind of rapid reform that the book “Throw Them All Out” and the 60-minutes expose on PBS did last year. The book was published in November. PBS aired the expose on November 13. Just months later the STOCK act — prohibiting the abhorrent but generally accepted practice of trading public stocks on insider Congressional knowledge. Now that was awesome to watch. Congress’s 10% approval rating hadn’t been enough to change their behavior, but being outed by PBS and a carefully researched book that showed how members from both parties had been trading on insider knowledge for years was enough. They were shamed into acting and acting quickly.

If enough light is shined on the corruption of our financial-political complex, and the fictitious (and harmful to the real economy) nature of most of the profits within the banking (i.e. high-stakes gambling) sector are more widely understood, perhaps a similar outcome could occur.

The last attempt at financial reform was an utter failure — too big to understand, too weak to matter. I spent a lot of time following that process, including time in Washington DC watching the conference committee finalize the bill. As is typical, no one had time to read the bill until after it was passed. What we ended up with was a 2,000+ page mass of confusion and mountain of complexity. And we ended up with very little actual reform.

What we need is short, simple, understandable. Former Supreme Court Justice Sandra Day O’Conner said a few years ago in Salt Lake City that part of the genius of the U.S. Constitution was it’s brevity. She compared it to the length and complexity of the European Constitution (signed but not ratified by all member states back in 2004-2005) which I have since found out is 70,000 words long, fifteen times longer than the U.S. Constitution. The Cato Institute reported years ago that few people in Europe had read and fewer understood because of its “impenetrable language.” http://bit.ly/JiLQQ4

I love the brevity and simplicity of the Glass-Steagall Banking Act of 1934. It was about 26 pages long (depending on which format you read) and cleanly separated risky investment banks from federally insured commercial deposit banks. You couldn’t be both until regulators over time eroded and finally the Congress completely killed Glass-Steagall in 1999.

Today our massive, complex financial institutions combine deposit-taking, lending, mortgages, credit cards, investment banking, securitization, proprietary derivatives betting, high frequency trading, and all kinds of sophisticated speculation (aka hedging) on interest rates, currency exchange rates, commodities and equity futures, and credit default swaps within massive, highly leveraged, poorly regulated multi-national corporations which no one — even executives with decades of experience in one type of banking or another — can fully understand or manage.

I’ve watched and read many of hours of testimony of bankers and regulators answering questions from members of Congress and the Financial Crisis Inquiry Commission, and I’ve also spoken personally with a former executive of one of the largest banks, and I’m telling you it is impossible for any human (let alone the poor folks in the risk management divisions) to understand what goes on within these corporations that process trillions of dollars of transactions and trades daily.

Is it any wonder that every year or two a “rogue trader” brings down a huge institution or sovereign? Or that cities and counties around the world have gone bankrupt because they entered into derivatives transactions that they didn’t understand. Or that MF Global could go bankrupt just months ago — the 8th largest bankruptcy in U.S. History — and lose billions of dollars from customer accounts because regulations didn’t exist to separate customer accounts from proprietary accounts, or if they did, they weren’t followed. Our financial institutions are 1 part traditional bank (to have the appearance of doing good for Main Street) and 2 parts casino. They make the majority of their profits from their derivatives businesses. We need enough Americans and legislators to understand that the casino part is sucking the real economy dry.

Where will the next crisis start? What company will have a breakdown in their risk management processes allowing another rogue trader to bring it to its knees? It’s hard to predict where the next crisis will start, because the current system is so concentrated and so complex, as Dallas Fed President Richard Fisher says.

Complexity is our biggest enemy. Simplicity should be our best friend.

Simplicity will be the only means to eliminate Too Big To Fail (just break up the big banks already!), separating them into individual entities with a charter to do one thing or another — not everything. Think of Teddy Roosevelt, the Trust Buster, breaking up the railroad and oil monopolies. That turned out to be good for the country and good for the stockholders too.

Simplicity will help us reduce the risk of a global financial catastrophe that is rearing its ugly head again, with Greece and Spain and Italy and the inevitable contagion that will spread to the rest of the world, worsing our economies and our well-being, resulting in a lot of unnecessary and undeserved human suffering and misery.

“Do not give children dynamite sticks, even if they come with a warning label. Complex financial products need to be banned because nobody understands them, and few are rational enough to know it. We need to protect citizens form themselves, from bankers selling them “hedging” products and from gullible regulators who listen to economic theorists.” – Nassim Nicholas Taleb in “The Black Swan” (2007)

Let me know if you want to join a citizen hangout on this topic. If you did, let me know how many books on the “Financial Crisis Reading List” you have read so far. http://bit.ly/tOxrcv

My guess is that 99% of us haven’t read a single one of these books — which is why we are living under a corrupt financial-political system.

Becoming truly informed is the principle prerequisite for participating in our effort. The more you study, the more involved you will want to be, and the more excited we will be to have you join the cause.


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Cloud Computing Question: Running Old Software in the Cloud

Cloud Computing Question: Running Old Software in the Cloud

Is there a cloud computing solution that would allow me to actually run old software (from 1995) in the cloud?

My #1 favorite software in the world is Folio VIEWS, the 3.14 version from 1995. I’ve been using Folio VIEWS since about 1990 to keep a personal knowledge base of everything I read that is interesting, all my meeting notes, conversations, etc. My personal “infobase” is a single file that is approaching 300MB. It’s fully searchable, has lightning fast browse, is fully editable, supports hypertext, groups, bookmarks, highlights, and more advanced searching options than the web has ever provided. From about 1995 (when I got a high speed DirecPC satellite dish) to about 2001 I tried to track all the news I could find about every internet company, every funding event, and every successful internet marketing strategy used by any company. I have tracked news or tidbits on more than 3,000 companies, and I organized the content as I went. This personal library may be my single greatest asset as an internet entrepreneur, consultant, and mentor. I can find case studies on almost anything. (I also saved hundreds of free case studies from MarketingSherpa and other newsletters into my infobase.) So it is incredibly rich, well organized, and I can’t live without it. (Yes, I’ve tried Evernote and a number of other possible solutions, but for me, nothing comes close. I should do a hangout sometime on Google+ just to show off this insanely good vintage software.)

The problem is that Folio VIEWS only runs on 32-bit machines. And recently I upgraded my Dell Precision T5400 desktop to 12GB of RAM, since I am now running Python scripts in the background and always have a couple dozen browser tabs open, as well as another dozen Word, Excel, and PPT docs open. My machine has slowed way down. So, I want the additional memory. But I have to install 64-bit Windows in order to access the last 8 GB. And if I do that, so long to Folio VIEWS.

My solution is to move Folio VIEWS to my secondary desktop. Today I’m installing Windows XP on that machine (replacing Windows 7 which I never liked), and then I’ll transfer Folio to that machine. That will create additional work for me. Instead of adding things to my infobase whenever I find it, I’ll have to flag it somehow and add it in batch mode to Folio. I think it will be a pain. But running a super slow machine is intolerable.

But can you see the ideal solution? A personal cloud computing option that supports both 32-bit executables as well as hosts the infobase. Then I could access my Folio VIEWS infobase from any machine. That would be a dream. Especially if I could access it and update it via mobile.

So that’s my question — is there a way to run 32-bit software in the cloud?

(I noticed +Phil Windley posted something about Personal Cloud Computing this week, so I’ll check that out in a bit. But I figure the Google+ crowd would be an ideal place to ask this question.)


from PaulAllenGplus’s Zipl.us Google+ Feed https://plus.google.com/117388252776312694644/posts/TcRur2PzmN2

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Americans Elect: best user registration process design I’ve ever seen.P.S. Vote for +Buddy Ro…

Americans Elect: best user registration process design I've ever seen.

P.S. Vote for +Buddy Roemer!

I just verified my voter identity at AmericansElect.org and have to say this is perhaps the best design of a user registration process that I have ever seen. I'm not saying it's the most frictionless. But whoever designed this is brilliant. The color schemes. The forms themselves. The look and feel. The overall flow. And the backend validation of my identity as a voter. All very, very impressive.

I do not know enough about the organization to endorse it, per se. But I do love the idea of Americans picking a candidate outside of the two-party system. And I am supporting +Buddy Roemer, who is the only candidate who has anti-corruption as his top priority. I think the majority of Americans believe our system is corrupt and that money buys way too much influence in Washington DC and elsewhere in government; but many are so ideologically tied to one party or another, that they'd rather give money and support to their party in an effort to defeat the other (scary) party, than to try to fix the system itself.

Buddy knows that our Congress is, for the most part, bought. And that special interests and lobbyists set the priorities for legislation and spending. And that we are in deep, deep trouble if we don't get money out of the system and reduce the corruption and crony capitalism that perverts so much of our economy. I wish more people would listen to Buddy's message. AE 2012 is perhaps the only way he'll get his message out.

I assume people in the U.S. are becoming accustomed to ranking low in worldwide surveys for quality of education and health care, but who knew that our corruption perception index (CPI) continues to get worse? We now rank #24th worldwide, below the Bahamas, Chile, and Qatar.

Check out the worldwide rankings for corruption: http://bit.ly/yzfW9C

Visit Americans Elect, if for no other reason than to see their user registration flow (and to take some screen captures). Or, better yet, vote for +Buddy Roemer, the leading declared candidate so far.

Here's the link: http://bit.ly/xHigY5


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The Presidential Candidate You Haven’t Heard About – The One Who Wants to Get Money Out Of Politics

Two weeks ago I had never heard of Buddy Roemer.

Now I follow him on Twitter, subscribe to his channel on YouTube, and am hoping to go to one of his events on the east coast next week.

He’s the most refreshing political voice on the national stage.

Buddy Roemer on MSNBC

I encourage you to take ten minutes, at least, and listen to what he is saying about money corrupting politics. He’s articulating what I’ve been feeling since opening my eyes in 2008 to what is really going on with our financial system and our supposed system of representative democracy.

He is right that if you have money and are a big donor, that you are first in line, and that you have influence; but if not, you are forgotten.

Meg Whitman called me at my home when she was running for Governor of California. I must have been on some political donor list. She only wanted $10,000 so that I could go meet her at a fund-raising dinner that was being held for her.

I’m telling you… big donors have easy access to politicians. The rest of us don’t.

Buddy Roemer wants to change all that.

Please take a few minutes and learn more about this former Governor and 4-term Congressman from Louisiana.

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Advice to Facebook: Time to Launch Operation Baby Come Back

Google started field testing Google+ last Tuesday. This has been very widely anticipated. Rumors have swirled for months about Google’s social strategy — what would it be, and when would it happen?

Conventional wisdom has held for some time that Google is too geeky to get social right and that it is game over. Many pundits say Facebook has already won. Facebook has hired a bunch of former Google stars and has been considered the hottest place to work in Silicon Valley for some time. It’s hard to imagine that changing as the company marches towards a billion users and a very high profile IPO.

But Google+ is an amazing product. It is lightning fast, beautifully designed, and feature rich. I have spent dozens of hours on it during the past week and am convinced it will be a massive success. In my view it combines some of the best use cases of Twitter, Facebook and Skype all in one sweet user experience.

I’ve watched in near real-time as dozens of people have joined Google+ and made their first post, sometimes just typing “test” or “hello world.” Soon they start asking questions about how this thing is supposed to work, and they get immediate responses from other users. They start seeing the similarities and differences between Google+, Twitter and Facebook. After some experimenting, they typically end up having a very positive response to Google+.

Access to Google+ is still very limited. But a lot of people have joined already and a lot more are clamoring to join.

Google Plus: 1.7 million users so far?

Over the weekend I conducted an extensive analysis comparing surname and population data from the US Census Bureau to the Google Plus user base profiles. My conclusion was that as of July 4th there were 511,000 users in the U.S. and 1.2 million outside of the U.S. for a total of 1.7 million users.

The U.S. estimate is extremely accurate because of the census data, but since I don’t have surname popularity data for other countries the non-U.S. estimate could be significantly off. Still, even if it is off, there is no question that Google+ is seeing an extremely rapid adoption rate.

Like most new social products, the early adopters have arrived in force: Robert Scoble has 17,000 followers. Other influencers like Matt Cutts, Kevin Rose, Jeff Jarvis, Michael Arrington, Pete Cashmore, Louis Gray, Danny Sullivan, and Tim O’Reilly have thousands of followers already and show up on the Top 100 users list compiled by socialstatistics.com.

Technology execs like Michael Dell are creating buzz in the Google+ community by participating in video Hangouts. Mark Cuban has posted some photos of his NBA trophy. (Go Mavs!) Newt Gingrich became the first presidential candidate to sign up. And Ashton Kutcher has 2,800 followers so far, with a few more celebrities putting a toe in the water.

Each new high profile arrival gives another existing fan base a compelling reason to try out Google+.

How Fast Will Google+ Grow Virally?

As a company, Google has more online users than any company in the world, with more than one billion people served in May. Mark Zuckerberg announced today that Facebook has 750 million active users. So this will be a historic battle between the two biggest online players in the U.S. This won’t be Microsoft crushing Netscape, or Facebook eliminating MySpace. This will be a real fight. Both contenders are heavyweights. And it will probably go fifteen rounds.

I’ve been involved in social products since 1998 when MyFamily.com launched and attracted 1 million users in 140 days, making us the fastest growing community site up to that time. We passed Talk City to break the record. (MyFamily.com played a fascinating role in the early success of Ancestry.com.) Four years ago, a new company that I founded launched the We’re Related app on Facebook which got 1 million users in 29 days and went on to reach 80 million total users – all from family members inviting family members. I think I understand family virality. But that is just the tip of the iceberg for Google+.


According to a fresh survey, 87% of Google+ users say they will invite relatives to join Google+ when they are allowed to. And on average they say they will invite about 12 relatives. By itself, this would help Google+ grow from 1.7 million users (my estimate on Monday) to several times bigger.


99% of Google+ users say they will invite friends to join the site – and on average, 179 of them! That kind of virality will be impressive.


And 83% say they will use Google+ at work, and on average they will invite nearly 100 people from their company to the site. Yammer, Chatter by Salesforce, and other business applications have conditioned millions of businesses to simple asynchronous internal messaging. Some people think Google+ is a huge threat to these services.

Google’s Other Channels

But Google will not be limited to viral growth in the typical social fashion. Remember, Google already has a billion users of its other properties. It is the largest search engine in the world. Gmail is a major email service. Blogger (soon to be rebranded Google Blogs) is the leading blogging platform. Picassa (soon to be renamed Google Photos) is an incredible photo organizing and sharing tool. There are so many other properties like Google News and Google Reader that could also be part of the equation.

Google will likely get hundreds of millions of users on Google+ by finding ways to invite them to sign up while they are searching the web or using email. Or maybe while they are using the Chrome browser, which now has 20% market share, or Google Android, which is the leading smartphone platform in the world. I read yesterday that 500,000 Android phones are activated every day.

Being a part of Google’s marketing team would be a marketer’s dream. This is going to be the most successful product launch in the history of the world.

Facebook’s Response

Facebook’s first public response to Google+ came last Thursday when Mark Zuckerberg said that Facebook would make an awesome product announcement today in Palo Alto. During the press conference today he announced support for group chatting as well as a significant integration with Skype, enabling 750 million Facebook users to have person to person video chats without leaving Facebook.

Many observers felt the timing was unfortunate for Facebook and that while these features will be great for Facebook users they were available in places like gmail and MySpace much earlier. For the first time it appears Facebook is playing catch-up.

If people love Google+ so much, will Facebook have to enable lists as filters, beef up groups and maybe even adopt the circle approach? Will they get in a race with Google to match feature for feature? Will Facebook start paying careful attention to what customers want, and iterate based on customer feedback as the Google+ team is doing so well. Tom Anderson, founder of MySpace, posted some nice compliments on Google+ about how involved the Google+ team is with its customers. They’ve already made a number of significant improvements to Google+ in the first week of field testing.

The possibilities of a feature war are exciting. Some of us geeks are having a hard time sleeping as we watch this play out.

The big question is will Facebook be able to maintain its lead through the IPO? What will happen to its possible $100 billion market cap? Google has been adding $1-3 billion per day to its market cap since the field test began. Is that coming out of Facebook’s valuation? Or will both continue to grow in users and value?

What Can Facebook Do?

As I look back over the past few years and the rise and fall of social sites like Friendster, MySpace, hi5, and Bebo, and as I consider why Facebook gained so many more users than all other sites combined, I think back to one of the biggest days of my life: when I met Mark Zuckerberg in person on May 25, 2007.

Background on Facebook Platform

Four years ago I attended the f8 event in San Francisco where Mark Zuckerberg announced Facebook Platform. It was an impressive moment in web history. Here’s what I wrote later that night:

I sat on the third row and drank deeply of the kool-aid as Mark Zuckerberg, who turned 23 years old just 11 days ago, presented what may be the best business opportunity for internet entrepreneurs in the past ten years.

A huge new opportunity was presented to the few hundred people in the room, including 65 companies that have spent the last few weeks developing applications for the launch of Facebook Platform.

Facebook is inviting anyone to develop applications for their users on top of what Mark calls their “social graph”–the core of their service which basically keeps track of real people and their real connections to each other.

I went on to predict in my most popular blog post ever that “Facebook will become the #1 social network worldwide and the first to get 1 billion users…”

(Read the full post here: http://www.paulallen.net/prediction-facebook-will-be-the-largest-social-network-in-the-world/)

Facebook already had a lot of momentum and user growth back in May 2007. They had 24 million active users at the time and were growing fast. I had been teaching internet marketing courses at Brigham Young University and knew from first-hand experience as well as from marketing studies that Facebook was the #1 most important web site for college-aged students.

But the primary reason that I believed that night that Facebook could reach a billion users was their new Platform. I knew that Platform would attract thousands of talented developers. It would unleash their creativity and soon, all kinds of valuable, useful and fun widgets would be a click away for Facebook users. But Facebook would benefit too: each application had the potential to increase Facebook’s virality. Cool apps could be instantly shared with other Facebook users. But each new app could also enable users to reach out to friends and family and co-workers who were not on Facebook yet, and invite them to join.

That evening, Zuckerberg said his small team couldn’t possibly create everything that online audiences would want, and they didn’t want to. They wanted their Developer community to do it for them. They just wanted to own and manage the social graph. He even said he would even allow developers to build photo and video applications to compete with Facebook’s own simple applications. He talked about a level playing field. Because that’s what Platform companies do.

Getting App Developers on Board

Just minutes after Zuckerberg finished making his announcement, I was on the phone with my lead engineer and product manager excitedly explaining how our company strategy would immediately shift from building a dedicated social web site for families (a la MyFamily.com) to building apps for families on Facebook. We bet our company on Facebook Platform.

During the next 2 ½ years we became a leading Facebook app developer. We built an application that helped you find all your relatives on Facebook, build a family tree, and share content privately just with your relatives. We attracted 80 million users and were growing by 1 million per week at our peak. Our internal surveys showed that forty percent of our users gave full or partial credit to our app for their decision to join Facebook. Facebook was helping us, and we were helping Facebook.

Our app was family history related so it attracted older users. As our growth skyrocketed, reports appeared showing that Facebook’s fastest growing demographic was women over 55. Our app helped with the mainstreaming of Facebook. And so did many other apps.

Companies like RockYou, Slide, iLike and Living Social focused enormous energy on building apps for Facebook. They were rewarded with tens of millions of users and huge valuations and funding rounds.

Facebook Platform was working its magic.

The Spirit of Wikinomics

In that famous May 2007 post I shared a couple of quotes from chapter 7 of Wikinomics that applied perfectly to Facebook’s Platform and to other platforms as well. (I highly recommend this book.)

“The winners in this evolution will be companies that can create the *most comprehensive incentive frameworks* to adequately reward all stakeholders.” (p. 207)

“Winning in a world of cocreation and combinatorial innovation is all about building a *loyal base of innovators* that make your ecosystem stronger.” (p. 210)

Initially Facebook had the best incentive framework I had ever seen. They gave developers the gift of free virality and they initially promised we could keep 100% of the revenue generated by our apps.

We not only bet our company on Facebook but we also became serious evangelists for the Platform. We held developer garages for top entrepreneurs and developers in Utah to try to recruit more developers to the Platform. In a healthy ecosystem, everyone benefits from the network effect. A rising tide floats all boats. Dozens of Utah’s best and brightest attended our events where we taught them about building apps in Facebook markup language, FBML, and hosting apps in the Amazon cloud for ultimate scalability. Our success was contagious.

At Stanford, my friend BJ Fogg taught a course in the fall of 2007 with Dave McClure about how to build engaging and viral Facebook apps. Students built apps that attracted more than 10 million installs during the semester. Funds started springing up that were going to back the companies who were building on this platform. It was an incredible period of growth for Facebook and its ecosystem.

The main point I made that night was this:

[Facebook’s] growth will be dramatically accelerated by the Platform announcement. If Facebook is adding 100,000 new users per day with its own few simple applications (like its photo sharing, a very simple service that has given Facebook twice as many photos as all other photo sharing sites combined), what will happen when thousands or tens of thousands of developers start building apps in Facebook and marketing them to more users?

Facebook will reach 50 million, then 100 million, then 200 million users, and beyond.

Rather than continue to try to develop features within its own proprietary, closed network, basically keeping all of its users to itself (and kicking out widgets they don’t like, like MySpace does), Facebook intuitively gets the concepts that are so brilliantly discussed in Wikinomics (which are so non-intuitive to old school business types), and has chosen to open up its network for all to participate in. Because they embrace the winning philosophy, they will win.

Application developers can now have access to core Facebook features, such as user profiles and user connections, and even publishing to the News Feed, all with the control and permission of Facebook users. So if a Facebook user chooses your app, it will show up on their profile for all their friends to see, and they can enable that app with a single click, and so your application can spread virally to the 24 million other users.

Platform Helped Facebook Surge Past MySpace

At the time, perhaps the best analysis about how critical this developer platform (or “widget network”) would be to Facebook’s success came from the famed entrepreneur and brilliant investor Josh Kopelman. He wrote,

…Myspace’s lack of a clear “widget roadmap” created a big opportunity for their #1 competitor, Facebook.

Just last week, Facebook took advantage of that opportunity in  a huge way.  Specifically,Facebook announced their new development platform, F8.  I won’t spend a lot of time describing their announcement (I’ll leave that to others), but I agree with Paul Allen’s summary of the three key points:

  • Applications can be deeply integrated with Facebook
  • Distribution of the applications will occur through the network, and
  • The business opportunity Facebook is providing will give 100% of advertising revenue (for third party applications) and 100% of transaction revenue to the application developers.

By providing a clear roadmap – and business opportunity – for the widget makers, Facebook has just increased its virtual R&D budget by over $250 million dollars.  By welcoming third-party innovation, Facebook will reap the benefit of hundreds of millions of dollars of venture investment – and the Facebook user will have a much richer experience.  I’d wager that every widget maker who has previously relied on Myspace for traffic is hard at work this holiday weekend on migrating their application to support the Facebook API.

Think about it.  If you ran a venture-backed company and had to decide whether you wanted to focus your effort on:  (a) a property that welcomed you in and let you keep 100% of the revenue you generate or (b) a company with a vague policy that doesn’t let you generate any revenue, which would you choose?  I don’t think it’s even a decision.  It’s an IQ test.

Facebook has recognized (and embraced) something that Myspace has not – that there is more value in owning a web platform then a web property….

Major Growth

Today, Facebook is about 30 times larger than it was 4 years ago. It has been translated in 70 languages, mostly by its users. According to Quantcast, 76% of the visitors to Facebook are “addicts.” Zynga, the leading game company on Facebook Platform is going public and may be worth $20 billion. Facebook itself is preparing for an IPO early next year and may achieve a $100 billion market cap.

But besides games, what serious applications are being built for Facebook today? Why did Facebook go from promoting its Platform to hundreds of thousands of developers, to shifting its emphasis to Facebook Connect? Why did it stop letting its users add content and links from apps to their personal profile pages, so that their friends could discover what apps they were using and promoting? Why did it stop (for a while) helping apps communicate with their users?

Facebook seemed determined to make all of its app developers, especially games, pay for Facebook ads to get users.

Where have all the app developers gone?

Abandoning the Winning Philosophy

Something changed at Facebook in 2009. The spirit of Wikinomics was lost. I don’t know all the reasons why, but the Facebook Platform opportunity that promised free virality and 100% of the revenue from canvas page views turned into a nightmare for many app developers as viral touch points and communication channels were deprecated from mid 2009 to late 2010.

There were rumors that Zynga might be making more money in 2009 than Facebook, and that must have rubbed everyone at Facebook the wrong way. Facebook was spending a huge amount of money to support applications and probably wasn’t getting a fair piece of their success – not like Apple, which took 30% of all the revenue from its app sales. Something had to change.

I had warned in 2007 that a gaming company might actually make more money building on Facebook than Facebook itself would make:

It is even possible that some future Facebook app developers could end up with a greater market cap than Facebook–if they permanently maintain the 100% of revenue going to the partner model. For example, a MMORP game built into Facebook might someday have 10 million users paying $10 per month, or $1 billion in revenue, when Facebook might at that point have $500 million in advertising revenue. (Reportedly it will make $150 million this year.)

Okay, not likely, but maybe possible.

The cool thing is that the marketing costs for these application developers will be basically nothing. All viral. All courtesy of Facebook’s users.

If Facebook’s strategy team understood how to create the winning platform, then rather than eliminating the benefits to becoming a Facebook app developer, they would have tried to make it possible for dozens of companies in non-gaming verticals to also become massive successes on the Facebook Platform. Not just Zynga, Playfish and Playdom. It wouldn’t be stuck as just a social gaming platform. After all, with more users in more verticals, Facebook would ultimately benefit the most.

The core asset Facebook wants to own, extend, and leverage, is the social graph–who is connected to whom.

Facebook Platform Roadmap

In late 2009 Facebook announced their Platform Roadmap at another developer event. Publicly, they tried to spin the changes as being positive to users and developers alike. Leading developers knew this Roadmap would be absolutely devastating. Privately everyone was scared and upset. Publicly, no one wanted to say anything to Facebook or about Facebook that might cause them to be singled out and punished for their lack of loyalty.

The Roadmap was a series of design and API and policy changes that largely took away the opportunity for app developers. Over the next year and a half, these changes decimated the developer community and many startups that had sprung up around Facebook Platform.

There were legitimate reasons for some of the changes, including reducing the spamminess of many apps and reducing the huge costs that Facebook was incurring for hosting content and delivering billions of page views and user notifications at no charge for the apps. Some apps were harming the Facebook user experience. But there were definitely other solutions that could have been pursued.

Overall I believe the main impetus for the Platform changes was this: Facebook had reached a tipping point. It had achieved critical mass and no longer needed apps to “accelerate its growth.” By eliminating the gift of free virality to its app developers, by taking away notifications and eliminating the presence of apps on personal profile pages, developers (especially Zynga and the other game companies who were generating huge revenue) would have to buy Facebook ads to achieve growth. Facebook also knew they could easily build some of the most popular features of leading apps into its own user experience, which they did.

The Ecosystem Weakens

As the Facebook Platform opportunity disappeared, so did the VC funds and the angel investors who had been so energized to fund the next big thing on Facebook.

Hundreds of early entrepreneurs and developers had been building apps and evangelizing the Platform. But all that energy dissipated and a lot of dreams were shattered. I personally lost about 40 employees as a result of the Platform changes. Multiply that by hundreds or thousands of other companies and you’ll begin to understand the pain that was felt as the Roadmap was implemented.

My company (and admittedly, ours is an extreme example) went from 21 million active users of our We’re Related app at our peak in late 2009 to under 500,000 at the bottom in late 2010 — that’s a 98% drop in users. Many other apps experienced similar fates – apps that would have improved in quality and value over time.

Our own product roadmap was really cool. Our customers had answered hundreds of survey questions about what features and services they wanted us to build next for their family and extended family. We had more than 200 million responses.  We hired a dozen talented engineers, many from Move Networks, and we were excited to move forward. But then the opportunity disappeared. For the next 18 months, we just tried to stay alive.

Mark Zuckerberg came to Provo earlier this year. He was interviewed by Senator Orrin Hatch in front of a crowd of 20,000 or so college students. He got a standing ovation as he entered Jimmer’s house – the BYU Marriott Center. It was actually a very cool, very surreal experience to have the world’s second youngest billionaire (Facebook co-founder Dustin Moscovitz is 8 days younger than Mark) gracing the campus.

Mark spoke passionately about how every industry would be reinvented in the coming years. Everything would become social. Then he mentioned my company as an example of how developers are going to build all the great apps for every vertical market. He mentioned that we had a million users. I can’t explain the pain I felt when I heard that. It was a dagger directly to the heart. Once again I was sitting on the third row listening to Mark. This time, I didn’t make any phone calls after the interview. I sat quietly, trying to make the pain go away, trying to cool down.

Operation Developer Love

Last year Facebook launched Operation Developer Love, an attempt to be responsive to the needs of developers and to keep them posted on the implementation of the Facebook product roadmap. There have been a couple of platform changes that have helped the developers this year. But if Facebook wants to regain the trust and love of the developer community, it needs to do so much more.

Can Facebook Be A Legitimate Platform Again?

Because Facebook focused on getting a piece of the games economy on its Platform, they may have hurt their chances to be a Platform for substantive applications in business, education, health, finance,  government/law, travel, real estate, and so forth.

Third party developers who want to build serious and useful apps no longer get any real viral boost from Facebook. To get users, you need a large advertising budget. One speaker at a Facebook conference last week in San Francisco told game developers to plan on buying Facebook ads to get 90% of the users to their game. Once you have a hit on your hands, it makes it easier, as Zynga has shown, to get the next hit. But even Zynga is spending tens of millions on Facebook ads.

The “business opportunity” Kopelman referenced is largely gone. Web sites may use Facebook Connect to slightly improve their conversion rates and to generate some re-engagement loops with Facebook, but Connect hardly helps third party applications grow virally. Facebook has seriously restricted its viral effect for new apps, which was the #1 reason why great entrepreneurs and developers wanted to build there in the first place.

There is no question that Facebook’s team is brilliant. 750 million users is a phenomenal achievement. Facebook pioneered the stream, which is addictive; brilliantly crowd-sourced its translation into more than 100 languages; launched Facebook Connect which is used for easy login by millions of webs sites; and has become the world’s leading social gaming platform. And now they have Skype integration too.

But unless something is done to improve the native virality of the Platform, and to enable monetization of apps, Facebook will never be the best Platform choice for non-game app developers.

Google+ API

When Google+ launches its developer platform, Facebook will have two fights on its hands. A feature battle to keep users happy. And a new battle to attract developers and to make sure their ecosystem is strong. Recalling what Kopelman said, they still need a “widget roadmap” so that they don’t become the next MySpace.

Two days after Google+ launched its field test, CNET’s Rafe Needleman spoke with Google’s Vic Gudontra (Senior Vice President of Social) about Google’s plans for an API. Vic spent 15 years at Microsoft and was General Manager of Platform Evangelism there. Vic said,

“I’m a developer guy at the core. It is inconceivable I would build something without a platform.”

Which Platform Will Empower the Most Developers?

Facebook knows that every industry will be reinvented in the next few years. Everything is going to become social. Developers can leverage Facebook’s social graph to invent all kinds of new things. But will they? Will they ever trust Facebook again.

For developers, the romance is gone. Developers are energized about platforms like iPhone, iPad and Android. But not Facebook. For more than a year I’ve not spoken to a single entrepreneur who has made Facebook a significant part of their launch strategy, because of what Facebook did to its first generation of app developers.

New Facebook games launch every week, and there seems to be a new Turkish video sharing app on the top 20 fastest growing apps list too, plus a few other odds and ends.

But Facebook must create a strategy to empower developers in every industry vertical – not just gaming – to go viral and create value for Facebook’s 750 million users.

Remember, Google owns Android and already works with tons of developers. Add Google+ to that, and Google can provide a huge social and mobile opportunity for developers.

How can Facebook ultimately win, given those Google advantages?

Remember the Wikinomics advice:

“The winners in this evolution will be companies that can create the *most comprehensive incentive frameworks* to adequately reward all stakeholders.” (p. 207)

“Winning in a world of cocreation and combinatorial innovation is all about building a *loyal base of innovators* that make your ecosystem stronger.” (p. 210)

I’d like to see Facebook return to its roots, to its original promises to the developer community and to rekindle the excitement we all had about working with Facebook to change the world. I’ll even volunteer to help Facebook reach back out to its developer community, from the hundreds of people who attended the original f8, to the hundreds of thousands of developers who began to dream about building the next big thing on Facebook.

Facebook could announce a handful of changes that could re-energize its developer community and give Facebook users new and innovative things to look forward to – besides just the next Zynga game.

Here are a few suggestions:

  • Let consumers put apps back on their profile pages in a limited fashion. Customers want this – we know, because we forwarded thousands of email complaints to Facebook from our upset customers when this feature was disabled. This would be a huge shot in the arm for developers.
  • Make it easier through notifications for apps to communicate with their users. Requests 2.0 is a very weak substitute for the original notifications.
  • Enable app discovery. Where is the directory of top apps in every category. Make the directory easy to find. Use algorithms like Genius to help people discover apps they will like. Please, do something to help the developers.
  • Let developers use social ads – the most effective form of ads on Facebook – rather than restricting them to being used only by Facebook. Ad revenue could help Facebooks apps grow and disrupt software being sold on other platforms.

Google’s Army of Developers

Tonight in a very insightful blog post Startup Boy said that as Android’s more open platform is Google’s best weapon against Apple’s iOS, so too “an army of 100,000 developers is Google’s best chance against Facebook.”

Here’s more of his post:

Facebook developers face two major problems. Firstly, to attract them, Facebook concocted and gave the developers access to artificial virality channels. Then, to prevent spam, they had to take them back. But they did so capriciously and arbitrarily, with some (i.e., the offerwall providers) being punished, and some (check a certain game company’s S-1) being rewarded. Secondly, Facebook is still figuring out its own business model, so what’s allowed and what’s not changes on a regular basis – look at the graveyard of social ad companies and payments companies and the recent introduction and mandates on Facebook credits.

Google should tell developers – “here’s a simple set of rules that will never change. Here’s a simple API that we will always keep backward compatibility with. Here’s an incentive and a reward for creating an application that brings more users into G+. Here’s a simple and clear way for users to export their information and their social graph. Here’s the standard small cut that we take on everything.”

Right now, the only true open platforms for any startup are email and the web. Android is a close third. Facebook, Twitter, iOS, SMS, etc. while beautiful and elegant, forget at their peril that there was a time when AOL, Compuserve, WAP, and other walled gardens were beautiful and elegant too.

Can Facebook Get Developers Back?

For two years the Facebook Platform team’s main message was that the in-Facebook app opportunity was pretty much going away, and that Facebook Connect was the new company strategy.

But that may not be enough now. If Google+ is going to attract an army of developers, what can Facebook do now? Can Facebook acknowledge that it abandoned its f8 launch philosophy, reneged on its early promises and made a lot of decisions that hurt developers? Rather than try to justify those moves, can Facebook apologize somehow, make some simple new commitments, and then work harder than ever to serve not only users and advertisers, but developers too?

Maybe Facebook can do what Startup Boy is telling Google to do: introduce a “simple API,” create an “incentive and reward” for bringing new users in or bringing them back, and introduce a “set of rules that will never change?”

Operation Baby Come Back

It’s time for Facebook to take developers seriously. Operation Developer Love is not enough. It’s time to pull out the big guns. It’s time to launch Operation Baby Come Back.

Perhaps Facebook should get Jesse Eisenberg (he sings in the animated hit Rio) to put on his best MZ tee and record this classic song from the 70s. Or if Mark can sing, that would be better still. They could send the video clip to all Facebook developers past and present.

Baby come back, any kind of fool could see
There was something in everything about you
Baby come back, you can blame it all on me
I was wrong, and I just can’t live without you

Facebook is big enough to live without app developers for a period of time. But my main point is that whichever social network provides the best platform opportunity for developers will have a huge advantage in the long run. And I actually think it will be the deciding factor in the social network wars.

And make no mistake, the wars have begun. Tonight Google’s VP of Social posted that they were opening up invites for a bit so they could double the Google+ userbase. They are ready to handle that much load. Very soon after his message spread through the system the Google+ doors were closed again.

I suspect this means another 1.7 million people will join Google+ as they respond to the invites over the next couple of days. I’ll be updating my surname-based analysis and estimate tomorrow.

When Google+ reaches 100 million users in the next couple of months, the Facebook team will need its own army of 100,000 developers who are fully motivated by proper incentives and iron-clad promises to build cool things on top of Facebook’s API. In my view, it’s their best shot against Google.

Meanwhile, I’ll be checking my Facebook every day, watching for the video.

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FamilyLink seeks Cloud Computing System Administrator

FamilyLink has posted a job opening on Dice for a system administrator with Amazon or Rackspace cloud computing experience, as well as the following other requirement:

4+ years of Linux/UNIX administration experience
Experience with:
-firewall configuration
-MySQL replication
-DB monitoring & optimization
systems monitoring software

This year we have hired several key team members, including a couple engineers and designers, 2 former Ancestry.com employees, FamilySearch’s lead product manager, and email marketing professionals from Iomega and Nu Skin. Our revenue and site traffic continues to grow, and we are transitioning to the cloud to handle what we think will be very significant traffic growth in the coming months.

If you are interested in this position, please email me at paul AT familylink.com.

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#FinReg A Front Row Seat

I came to Washington DC this week on business, working on family history content partnerships with a half dozen major federal agencies, and also to attend the American Library Association conference which starts tomorrow. But my trip coincided with the House/Senate reconciliation conference on Wall Street Reform. And today is the day they are supposed to discuss derivatives, which I consider the central part of the reform bill.

I blogged last month about how worried I was that this reform process would be derailed by the powerful financial lobby. In particular, the Volcker rule is at risk of being gutted and the Blanche Lincoln amendment, which I consider the single most important part of the proposed regulatory reform is at risk of being killed.

Senator Lincoln (I had the privilege of shaking her hand today) seems to be the focus of all the attention of the congressional staffers, the media, and the bankers/lobbyists who are here – maybe 200-300 of them – waiting to see what is going to happen. Will she give in to all the pressure? Or will she stand firm on her position that the big banks, who derive huge profits from derivatives trading, spin out their derivatives operations, which will lead to the biggest restructuring of Wall Street in decades?

It’s 10:20 pm, and the discussions on derivatives (and I’ve heard there are 110 to 200 proposed amendments) has not even started – and yet it was supposed to happen today. It is approximately 79 degrees here in the Dirksen Senate Building room S106, but no one is leaving. We are all waiting for Chairman Frank to bang the gavel and start the debate.

He just banged the gavel, and Senator Dodd is now speaking about the Volcker Rule. And he also mentioned Section 716 and derivatives and suggested that these could be discussed for the next few hours. So it sounds like everyone expects to stay here till the early hours of the morning. I think I’m here for the duration. This is historic and I don’t want to miss the final vote.

A couple hours ago I was a little surprised – because I knew nothing about this particular financial instrument – that an amendment added tonight by Rep Scott Garrett (R-NJ) may lead to the creation of a market in the United States for “Covered Bonds” – an increasingly popular instrument used in Europe, which allows for the securitization of mortgages. The difference between covered bonds and the kinds of “mortgage-backed securities” which have wrought such damage the past two years to the global economy is that with covered bonds, the assets remain on the issuing firms balance sheet. This may mean that there will be better underwriting standards since they are not selling off all the risk to (potentially unwary) investors. I just don’t know enough about this market yet. Based on the volume of covered bonds being issued in Europe – which are at record levels – this could quickly lead to a multi-hundred billion dollar market for these bonds in the U.S. So I guess it shouldn’t be surprising that Wall Street would find a way – in this process to restrict and reform their activities – create an entirely new and potentially lucrative new market at the same time.

But, their main lobbying effort surely is to kill the Blanche Lincoln amendment and that has yet to be taken up by this conference committee. Or if it has been, it has been done privately (see this Reuter’s report from an hour ago) and will likely go the wrong way.

I’m hoping she has a few stones to sling from her purse, but I’m afraid in this modern scenario there are Five Goliaths – banks whose collective assets are approaching the size of the entire US GDP.

Corporate profits from the financial sector have grown from 13% of all domestic corporate profits from 1978 to 1987 to an average of 30% from 1998 to 2007. (Source: 13 Bankers, by Simon Johnson). The financial sector has spent nearly $5 billion in the past ten years on campaign contributions and lobbying, and has reportedly hired dozens of former members of Congress to help in this all-important current lobbying effort. The money and effort being invest to defeat the Lincoln Amendment is huge – even if it would be a helpful step towards reducing “systemic risk” in the global financial system. I have no idea – and little hope – that it will survive in any meaningful form.

Michael Greenberger, a scholar and former CFTC official, says if we adopt the wrong measures tonight we could end up with regulation in name only or no regulation at all. That is what I’m most worried about tonight.

I actually don’t have a front row seat to this very interesting and historic scene – I’m on row 5. It has been very interesting to see all my favorite CSPAN characters in person today. It’s a great country that allows an average citizen to watch these proceedings in person. I’ve met several Washington veterans today who have explained several things to me about how things work here. I certainly committed a faux pax by not wearing a tie today (though I am wearing a suit jacket). I thought I was the only man here without a tie, but I have spotted one journalist who is also tie-less. Next time I’ll know better.

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