2011-01-17 Facebook valued at $50 billion as frothy IPOs near

Intelligence Report - 01/17/2011
By Mark Glaser & Corbin Hiar




Facebook valued at $50 billion as frothy IPOs near

What a way to start the new year: On January 2, the New York Times DealBook blog broke the news that Facebook had received $500 million in venture capital funding, setting off a flurry of speculation about the likelihood of IPOs for it and other social networks. The half-billion-dollar equity investment by Goldman Sachs and Russian Internet investment firm Digital Sky Technologies valued Facebook at an eye-popping $50 billion, which will give Goldman less than a 1 percent stake in the company and -- factoring in DST’s previous investments in Facebook -- will raise the Russians’ ownership share to slightly less than 10 percent. Details leaked from the deal shed new light on Facebook’s opaque fiances. According to a memo obtained by Reuters, Facebook generated $1.2 billion in revenue in the first nine months of 2010. Based on those figures, analysts told the Wall Street Journal that Facebook’s revenue in 2010 -- fueled by robust ad growth -- could have been as much as $2 billion. Could Goldman’s support for social media lead to a flurry of IPOs? One controversial aspect of its deal with Goldman has already drawn the attention of the Security and Exchange Commission. In addition to investing its own capital, Goldman solicited bids of $2 million or more from its high-net-worth clients to invest an addition $1.5 billion in Facebook via a “special purpose vehicle.” Analysts believe the accounting arrangement is intended to circumvent a SEC regulation requiring private companies with 500 or more investors to file financial statements with the agency -- a possibility the SEC is examining. But as Mashable’s Ben Parr points out, even if the SEC finds that Facebook has broken the 500-investor threshold, it still wouldn’t be legally compelled to go public until May 2012. The IPO for social game company Zynga and leading business networking site LinkedIn seems more imminent. Reuters’ Nadia Damouni reports that LinkedIn has already selected its underwriters and is planning to go public in 2011. In secondary markets LinkedIn, which claims 85 million members, has an implied valuation of around $2.2 billion. Plus, Groupon recently spurned a $6 billion takeover from Google and could be planning an IPO that would value it at $15 billion.


Finally...the iPhone comes to Verizon

At the press conference announcing the Verizon iPhone, "The Daily Show" went from mocking the news to making it. As the Silicon Alley Insider reported, correspondent John Oliver interrupted the event, shouting “F--- yeah! Thank you!” But what was really newsworthy about an event that has been expected for so long? The major impact the Verizon iPhone will have on the wireless competitive landscape. AT&T, which has been the exclusive network of Apple’s popular smartphones, is likely to suffer a significant hit. James Ratcliffe of Barclays predicts AT&T will only sell six million iPhones in 2011, down from an estimated 15 million last year. But AT&T may do better than those numbers suggest. It has aggressively cut the subsidized price of the older 3GS iPhone to $49, used the release of the iPhone 4 to lock more customers into two-year contracts, improved its portfolio of handsets with some powerful new Android devices, and upped its early termination fee from $175 to $325. And sources tell the Wall Street Journal that AT&T also plans “to run new ads that will highlight what the carrier says are the iPhone's greater speed and better functioning on its network” -- a surprising move, considering that Consumer Reports ranks AT&T last in terms of network quality. For its part, Verizon is mostly letting frustrated iPhone users like John Oliver come to them. No one is quite sure how much pent-up demand there is for iPhone service on a more reliable network, but the Journal reports that “analysts think Verizon could sell 7 million to 13 million this year." A bigger consideration for publishers is how the move will affect the mobile device and advertising markets. More iPhones means more devices that can run Apple’s high quality iAds, the sales for which only grew “at a modest pace since launching last summer,” notes ClickZ’s Jack Marshall. But it’s not all bad news for Google and its Android operating system. In the third quarter, Android’s 26 percent of the mobile OS market actually surpassed Apple iOS (25%) as the second most popular U.S. smartphone platform behind Research in Motion's Blackberry (33.5%). The open-source Android OS will also become available on more budget smartphones, a market Apple will not be able to tap into on Verizon, where only the iPhone 4 will be available (lowest price: $199). “We are going to see a massive shift from 'dumb phones' to 'smartphones' around the world this year, and iPhone will not be the big beneficiary of that trend,” Fred Wilson of Union Square Ventures told Newsweek. In the mobile ad market Google is also well positioned. In December, Android pushed ahead of Apple iOS in impressions (46% to 32%) and revenue generated from apps (55% to 39%), according to ad network Millennial Media. Even if Apple’s device sales slow Android’s ascendancy, Google will still be making money. As BusinessWeek notes, “Google generates revenue from ads on phones running various operating systems, including Apple’s iOS.”

Is Quora the next Twitter -- or Chatroulette?

What to make of Quora? The site combines the user-generated elements of Wikipedia and Yahoo Answers with the following features of Twitter and Facebook and the voting elements of Reddit and Digg. Users can pose and search questions, follow topics or people, and vote on their favorite answers -- all in real time. This much discussed social Q&A site was founded by two early employees of Facebook in October 2009. The pair raised $14 million in venture capital backing -- at a valuation of nearly $90 million -- before even taking Quora out of beta testing. By last autumn, the site’s user base began to shoot up, but it wasn’t until the holiday season that it truly took off. Two crucial endorsements helped fuel this burst in popularity: one came in the form of a glowing blog post from new media guru Robert Scoble; the other, in a series of Quora answers from AOL founder Steve Case. A flurry of media coverage soon followed, leading to more rapid growth, which of course led to more media coverage. Soon, the wider public became aware of what had already been “a favorite of the Silicon Valley set since long before its public launch last June,” said CNET’s Caroline McCarthy. Now the New York Observer’s Adrianne Jeffries reports that Quora has “hit the half-million user mark.” Does this rapid growth mark Quora’s entry into rank of serious social media contenders, or will the site merely become another Chatroulette-like curiosity? “Quora will be bigger than Twitter,” predicts the Telegraph’s Milo Yiannopoulos. “Unlike Twitter, which takes time” to find interesting people to follow, the usefulness of Quora “is obvious, and immediately accessible,” he writes. Furthermore, Yiannopoulos notes that “monetization strategies present themselves readily, where they did not -- and still do not -- in the micro-blogging platform's case.” David Spinks, co-founder of BlogDash and an early Quora adoptor, tells ClickZ’s Christopher Heine that many users are already attempting to leverage the site to create business opportunities. “Peer reviews on the social web are powerful as ever, as we've seen in how people use Twitter,” Spinks says. “As Quora grows and reaches the less tech-savvy masses, the B2C value will only grow.” That is assuming that the expanded user base doesn’t cause the site’s quality to degrade to what Silicon Alley Insider’s Pascal-Emmanuel Gobry calls “Yahoo Answers-style awfulness.” As GigaOm’s Mathew Ingram notes “some users are already complaining about the decline in quality on the site as traffic increases.” On the other hand, Mashable’s Vadim Lavrusik says Quora is too “tech-heavy” to attract a mainstream audience and will have trouble building on its sudden surge in traffic.

Tablet Roundup: The Daily delayed; Google newsstand coming?

They are certainly an odd couple: media mogul Rupert Murdoch and tech maestro Steve Jobs. Yet both will soon share a San Francisco stage to announce the launch of News Corp’s long-awaited iPad-only newspaper The Daily. Speculation has swirled in recent months as the release date has been announced -- and then repeatedly pushed back. Unable to wait any longer, Poynter’s Damon Kiesow snuck into the back end of the tablet paper’s mirror website, TheDaily.com. Examining the source code, he discovered a “share links” section, which “may indicate the availability of Facebook, Twitter, Digg, Reddit and Newsvine article-sharing options” -- a crucial feature that some observers thought might be left off the mirror site. Kiesow wonders “how the app, which will be available at a $4.25 monthly subscription, will integrate with a possibly free, though potentially limited, website.” Although we'll have to wait a bit longer for the full details, the delay is good news for the industry. MediaMemo's Peter Kafka reports that it “is supposed to give Apple time to tweak its new subscription service for publications sold through its iTunes platform” -- an option publishers have requested since the iPad’s debut. Jobs’s new-found willingness to work with Murdoch and respond to the pleas of publishers may be due in part to more heated competition from Google. The search giant has already created an open-source Android operating system to power tablet PCs. Now it is meeting with publishers to hammer out details on a digital newsstand that would compete directly against Apple’s iTunes. Sources tell the Wall Street Journal that, “Google hopes to launch it in part to provide a more consistent experience for consumers who want to read periodicals on Android devices, and to help publishers collect payment for their apps.” The company said it would take a smaller cut of the sale price than Apple’s 30 percent share and may be willing to share consumer data with publishers, which they want to help tailor their marketing pitches. Apple has previously refused to negotiate on price or data-sharing, much to the consternation of publishers. ReadWriteWeb’s Audrey Waters points to a recent post from Atlantic publisher Jay Lauf: “What happens if an ‘iStand’ supplants the newsstand in the way iTunes has supplanted the record store? Currently it means the characteristics and locations of readers we've long had a direct relationship with...will be in the hands of Apple, not us." Google did not provide the Journal with any timetable for the initiative and warned that it is still not certain the newsstand will materialize.


Small advertisers give online ads big boost in Q3

Although the economy is slowly improving, the market for online advertising is doing even better. In the third quarter of 2010, Internet display ad sales were up 7.5 percent from the same period of 2009, according to a Kantar Media report. “The bad economy has actually accelerated the shift to digital advertising,” said eMarketer's Geoff Ramsey. “Online ads, especially search ads, are increasingly seen by many marketers as a more reliable bet than print ads, which are often difficult to tie to a measurable financial result.” Piling into online ads were small advertisers, which after spending only 3.3 percent more during the first half of 2010, increased year-over-year spending by 8.1 percent in the third quarter. "Small advertisers, which make up 20 to 25 percent of total ad spending, were much more cautious in the first half of the year," said Jon Swallen, senior VP-research at Kantar Media. "But in the third quarter they went all in," he told Ad Age’s Nat Ives. Steve King, chief executive at ZenithOptimedia, predicted that Internet advertising -- particularly video and mobile -- would continue to grow more than any other category from 2011 to 2013. He forecast an increase of 48 percent for digital ad revenues in that period, and a decline of two percent for print -- the only sector the ad market expected to lose revenue over that period. Some analysts think tablets could prop up print much in the same way Internet video is supporting television ad spending. “Some big breakthroughs are on the way for print media to move onto the tablet, which will spur more rapid consumer adoption,” said Nick Pahade, chief executive at digital media buying company Traffiq, in an interview with the New York Times.

Mobile boom in broadband, social networking

Mobile broadband is set for a big boom in 2011. Reuters' Simon Johnson reports that, after reaching 500 million mobile broadband subscribers in 2010, Ericsson -- the biggest global mobile network gear maker -- says the world is set to double that figure this year. GigaOm’s Kevin Tofel explains how significant the 1 billion subscriber’s milestone would be: “By the end of this year, it’s possible that mobile web subscribers will outnumber wired broadband users for the first time ever!” In-Stat pegged the number of global wired broadband users in 2010 at 763 million. Even if mobile doesn’t surpass wired broadband this year, it will very soon: Ericsson predicts that growth in the mobile broadband market will continue to accelerate, topping 3.8 billion subscribers by 2015. To put this growth rate in perspective, there were only 200 million mobile broadband subscriptions in 2008. With more users, wireless networks will be strained to meet the growing demand for data. ReadWriteWeb’s Mike Melanson predicts the end of unlimited data plans and the introduction of tiered pricing, which is already a fact of life on AT&T’s overburdened network. MetroPCS, another wireless provider, has restricted access to Skype and some data-heavy video streaming sites -- a right afforded to it by the FCC's recent decision to exempt mobile networks from Net neutrality regulations. While video sites might not see the full benefit from the mobile boom, social networks will, according to a study from eMarketer. The research firm “projects the number of mobile social network users will more than double between 2010 and 2015, and adoption of location-based services will rise with it.”

Of Note

With IPO, Groupon Is Said to Value Itself at $15 Billion (NYT | DealBook)
After rejecting Google’s $6 billion buyout, analysts say Groupon is trying to cash in market interest

After Slashing Through Newspapers, Internet News Eyes TV (The Atlantic | Business)
Pew finds that the Web is already the top news source for 18- to 29-year-olds and gaining on TV in all other age groups

Why ProPublica is publishing web ads -- and what that means for the nonprofit outfit’s funding future (Nieman Lab)
In bid for revenue sustainability, the investigative journalism outfit joins the public media ad network

Privacy Law Is Outrun by Speed of Web’s Progress (New York Times)
Twitter fight to inform users of government’s Wikileaks subpoena highlights privacy gulf between print and digital communication

10 Mobile Trends in 2011: Android Boom, Tablet Multiply (PBS MediaShift)
Also: Increased use of geo-location, 4G networks, WiFi hotspots, and better touch screens


openquoteIs RSS actually doomed, or even ailing? Not really. Like plenty of other technologies, it is just becoming part of the plumbing of the real-time web.closequote

Mathew Ingram, GigaOm

Sure, RSS Is Dead -- Just Like the Web Is Dead (GigaOm)


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