The FaceFeed Ponzi Scheme

So I’ve been a bit swamped this week with several projects I want to blog about soon. As I result, I missed out on the chance to join the wave of insta-hype surrounding Facebook’s big move to buy FriendFeed. Late to the party as I am, I have a few thoughts.

Is Goldman Evil?

Some weeks ago, I read a mediocre rant about the alleged “evils” of Goldman Sachs. I rolled my eyes at yet another knee-jerk-populist, unproductive reaction to the recession. The next day at the gym, Chris Matthews had the author, Matt Taibbi, on, and began drooling all over him as some kind of investigative tour de force. The meme caught on. Not only has Taibbi been on TV nonstop, but friends who usually scrunch their noses in confusion at my business-journo world have been chatting me up constantly about the Goldman conspiracy and crediting Taibbi with discovering it. Allow me to correct the record.

According to Taibbi, Goldman Sachs deliberately inflates speculative bubbles by finding or manufacturing securities out of worthless assets and selling them to the public as secure; then they  get themselves out before it crashes; or, they rely on high-placed alumni to to save them. Moreover, they’ve done so in “every major market manipulation” of the last century. His case studies: The Great Depression, the DotCom Boom, the Housing Boom, the Commodities Boom (ie high gas prices), The Bailout, and (coming soon to a theater near you), Cap and Trade. This argument, which I’ve summarized in one paragraph, takes Taibbi  (get this!) 10,000 words. I’m going to explain why he’s a hack in 1/10 the space. Still a long post, for which I apologize. Read the rest of this entry »

Good News that Makes Me a Little Bit Mad

The FCC is investigating Apple’s decision to disable third-party iPhone apps that let users access Google Voice from their phones, and to reject Google’s own application providing the same service. At first, most tech commenters were eager to exonerate Apple by blaming it all on Big Bad AT&T;, who, as a telecom provider, obviously have a competitive reason to block any VOIP technology.

MicroHoo > Yahoogle

I’ve spent much of the week pondering Microsoft and Yahoo’s new search deal. Given that Google’s similar offer to Yahoo! last year was deemed anticompetitive, and that the status quo in search based ads may also be anticompetitive, we should at least consider the possibility that this partnership could be a good thing.

Some background: Yahoo! Search has been tanking for a long time. Since the money is in selling ads alongside the search results (whether keyword buys or bulk display), Yahoo! can’t monetize those search pages if the results are no good. Microsoft had a similar problem for a while (see Windows Live, Fiasco That Was) but it was nothing compared to the bigger threat Google poses to them in the application space—if (when) Google succeeds in moving us all to cloud applications, Microsoft’s real money pot, in office software, is cooked. To Google, cloud apps don’t matter as standalone revenue sources but as part of a massive data-mining operation. So as long as Microsoft and Yahoo! continue to lumber along independently, with both losing to Google in search and Google closing in on Microsoft in applications, Google has nothing to worry about.

Does that change with a deal like this? Yahoo! agrees to give up its search technology and let Microsoft, with its new Bing search engine, power search results on Yahoo! sites. Yahoo! and Microsoft then share the ad revenue on the results, except that Yahoo! gets 88% of it. A lot of pundits balked at the whole premise, but I disagree.

Yahoo! beats Google in one category of sites Google offers consumers as a ploy to gather data—media content. Yahoo!’s portal pages—its news aggregators, finance listings and fantasy sports leagues, for example—are more robust and richly developed—than anything Google has on offer. Yahoo! has all these people (myself included) turning up to check on their fantasy teams, but they can’t keep them there and effectively monetize them because the users don’t stick around to use the search bar. If they can outsource the search to Microsoft, they can keep those folks around and make a neat little business as a portal. Maybe it keeps some small fraction of users off Google who would otherwise flit there from the Yahoo! pages, but not enough to unseat Google. It’s not quite pro-competitive in that sense, but it is pro-innovation because it allows Yahoo! to keep developing a competency in something Google doesn’t do well.

Moreover, it may train Microsoft to finally trust the web. Have a look at the character of the experience provided on a Yahoo-powered-by-Microsoft home page: it’s free content with ads, just like Google pages are, but it’s less Googley in tone. Yahoo’s portal sites differ from Google’s (see above) in that they are more developed, more curated. Microsoft’s search technology differs from Google’s in that it’s less crowd-sourced and more directed. Like Yahoo!, it’s designed for and marketed to people who are sick of navigating the web for themselves, who WANT a little direction and intelligent design. The synergy here makes sense.

If it works, it may open Microsoft’s eyes to a broader business in serving those users, which is where Microsoft’s ultimate salvation has to be. Google still hasn’t convinced Microsoft’s big corporate clients to replace Excel with Google Spreadsheets—what Microsoft needs to offer isn’t a copycat product that also spare and barebones, but something a little more robust and only partially open, what I might call cloud-lite. I have no idea what this would look like, but I think it’s something Microsoft has the best shot of anyone at developing and would be a new addition to the space, an actual innovation.

In other words, what these deal actually does is secure Google’s continued dominance in search, Yahoo!’s in curated content and potentially Microsoft’s in office applications—even in the cloud age. It doesn’t end any monopolies but splits the current market of ALL ONLINE CONTENT into three into which each of these firms can dominate a piece. That at least cuts them all down to a focused size and makes them, perhaps, easier for smaller fry to take on in a focused way.

Still Thinking about Google

According to a new libel ruling from the UK courts, Google can’t be sued/fined for malicious falsehoods that appear on its news and blog pages (like this one). That makes legal sense, since no one employed by Google produces the content on the sites.

But here’s the problem: it’d be awfully hard to sue/fine some of the folk with Google blogs for their output either, since most of them consider what they do to be not-quite-published, and more akin to the kind of speech covered under slander law than the kind of published text covered under libel law. Clearly, the web has erased the most obvious divide between slander and libel, but it doesn’t really erase the qualitative one. A falsehood on my friend’s travelog about her summer in Equador is just not the same as a falsehood from Robert Reich.

Moreover, the underlying logic of libel law is based on private profit. You sue the people who make/write/print the falsehoods and if you win, you take back the profits they earned by spreading the lies.

The problem with private blogs on Google’s server is not only that they don’t aspire or try to uphold fact standards that are libel-proof but also that there’s an imperfect overlap between the person who produces the content (and thus might be morally responsible for it) and the person (AKA Google) who profits from that content (and thus might be fined to avenge a wrong).

The UK ruling thus underscores the argument I have been making about Google all along–they aren’t necessarily in open defiance of the laws, but their existence, their business model demonstrates the gap between the structure of our laws and reality of the internet economy. And try as I might, I can’t think of a way to solve this without in some way cutting Google down to size.

The Problem with WIRED

The August issue of WIRED has an interesting article on the growing antitrust pressure on Google, a pet cause of mine. It’s well reported, and well-written, as WIRED usually is. It more or less lays out the case against Google that I would make: that the individual markets in which it has x or y share are irrelevant, because Google is building a macro-market by aggregating data over all web content. Then it lays out the most common  counter-argument: that regulators shouldn’t be trying to stop companies the public likes/benefits from to protect the fluidity of the market. I disagree with this counter-argument. Other regulatory provisions–like consumer fraud laws–respond to public opinion, but antitrust laws exist explicitly to protect and promote competition.

Apocalypse 29: In Search of Patient Investors

BusinessWeek, my one-time employer, is on the sales block as of today with potential buyers being Bloomberg, Pearson or a private equity fund of some kind. My first reaction is just sadness for all my friends there, a group of sharp-as-nails writers and editors. My second reaction is to pray that a media company beats the LBO boys for the buyout. Here’s why:

The brutal reality of news media is that there’s no business model right now. Our output is divided between ‘old’ and ‘new’ platforms at one ratio, while our revenue is divided at a different ratio. It will stabilize as we create a business model for monetizing online, whether by premium subscriptions, better more expensive advertising, or both. I wouldn’t be entering this business now if I didn’t think so. But I’m betting it will take at least five years.

A media conglomerate ultimately wants to be in whatever new media form emerges in five years. So they will invest—not recklessly, but liberally—in a magazine or newspaper as the industry gets to its future state.

An LBO firm, by definition, buys distressed assets to get profits out of them fast, and then exits the business to try something else. Trying to cost-cut your way into profitability at a time when sustainable profits are years out is a fool’s errand. That’s the lesson Sam Zell learned at the Tribune. I sure hope we don’t have to watch BW go through the same.

Google Grows Up

It was a big week in Google-land, what with un-beta-ing of Google Apps and the subsequent release of Chrome OS. Obviously, this was Google’s shot across the bow at Microsoft as both companies gear up for a battle to control the cloud. To be honest, I think the cloud will ultimately be controlled by some third player none of us can imagine, just as Google scooped Yahoo! and Microsoft scooped IBM. [See disruptive technology].

Still, in the short term, it’s a big play for Google. What worries me is that as larger and larger shares of our economy move online, cloud computing will allow Google or its unknown successor to dominate multiple markets and do somewhat anticompetitive things with that cross-control. I already have misgivings about its search-ad business; it’s too early to tell whether cloud apps will work the same way.

What amuses me about this whole thing is whiplash it should give to those who apologize for Google’s business practices with claims that Google is “not evil,” or not really a business at all. Firstly, this week shows that Google wants big corporate customers just as much as Microsoft. Secondly, this week shows that their success is manifestly not predicated, as some suggest, on turning big business on its head by getting people to embrace beta as a new standard. Instead, they’ve had to give up this image of being frazzled-but-well-intentioned to get the big fish.

That doesn’t really make up for my worries about their broader business, but at least we can now discuss their tactics without the cuddly rhetoric. Or is that asking too much?

How to Handle Health Care

Here’s how insurance works. You sign up for a plan, and based on how likely to be sick you are, you get a quote for your monthly premium. If a particular insurer has a roster of clients who are 90% sick folk and 10% healthy folk, the base premiums they use will be higher than if the balance were 50-50, because they will need to pay out more funds to cover their clients and need more revenue from premiums to do it. But the people who have an incentive to buy health insurance are A. old or B. sick, precisely the demographics that drive premiums up. Now factor in that we have two insurance companies that are state-run, Medicare and Medicaid, populated ENTIRELY by the elderly and ill. The cost to the taxpayer of maintaining those is even higher.

Apocalypse 28: Lessons from the film industry

My friend and indie filmmaker Michael Morgenstern has a blog where he covers, among other things, the shakedown that is taking place in the film industry. It sounds a lot like the one we’re experiencing in journalism–to quote Mike, the challenges are as follow:

“financing its films when the distribution model is defunct, monetizing the Internet where users expect to pay nothing, and conquering the crowd logic of moviegoers and the advertising budgets of the big players.”

In a three part series that you absolutely must read, Mike has laid out how indie film landed in its current quagmire and how he believes it might emerge. Key to his vision are two ideas that have also been touted by new media activists (journalism’s equivalent of indie directors) as models for news. One is micropayments; the other is using a central web portal as the launch and landing pad for non-digital offerings of the most popular content. I have two essential bones to pick with this vision–firstly, that the central web portal for journalism, film and maybe one day music will be Google and there are serious anti-trust issues there, and secondly, that the micropayments system assumes users will set up a digital credit card account accessible at all websites and there are serious privacy issues there. While Mike gets points from this business writer for being more economically savvy than most filmmakers I know, he brushes over both of these issues.

Furthermore, there is a problem in journalism that film doesn’t have–while news consumers will surely benefit from the new opportunities given to small players, news consumers will also lose if the old players are allowed to go under. Serious film aficionados aren’t really worried that there’s a social cost to seeing fewer summer blockbusters from big studios, while they are understandably bullish about the growing capacity of small producers to do high quality storytelling. Not only do the “big boys” in the news industry have good content to offer, the particular kind of good content they have to offer–expensive, investigative reporting–isn’t being replaced by the small producers as the distribution costs drop. That’s because the cost of that reporting isn’t on the distribution side; it’s on the production side, in the form of reporters’ beat expertise, time and travel. Micropayments won’t cover that.

I don’t know enough about film to know if Mike’s vision will work for them. But I know enough about journalism to know it won’t work for us.