broadstuff

So, today Israeli Commandos boarded a ship running a blockade into Gaza in international waters and managed to shoot a bunch of the crew who attacked them with chairs and bits of metal. Now this episode raises some fascinating issues - legality of blockade running vs storming a ship in international waters, whether soldiers are the best guys for this sort of thing, the advisability of shooting civilians when the media is watching (remember Sharpeville?), never mind the bigger issues of what is required to run Gaza as a viable state.

So, I was quite curious about what the Social Media scene would do in reaction to these events - to wit, what colour would who paint their avatars? (if previous events are any guide). This one promised to be interesting as its not quite a simple good guys/bad guys story.

On Memeorandum the issues seem to be resolving into two camps throwing stones from their respective high grounds..... but political wonks are known to be that way, and the rational middle ground is always sparsely populated in social media. And so it has proved here - it was only the "quality" Main Stream Media that seemed to make any vague pretence at dispassionate analysis.

Would the Tech crowd would be more sanguine?

No, this time on Techmeme the major obsession seemed to be whether #flotilla (the Twitterstream covering the event) was censored or not when it dropped off the Twitter trending radar*. (The comments resemble memeorandum's stone throwing though.)

This blog aims to be pretty much apolitical, but re social media responses, bear in mind that many pundits believe Social Media is both the New Media and the best way to Government 2.0. May just be me, but I don't think that this episode so far has been a great advert of its capabilities - not exactly wisdom of the crowds at its finest.

To me the big debate is what is required to run something like Gaza as a viable state (or not), and everything follows on from that.

(But while we are getting all social meta, to me the most interesting lesson social media wise was the Israeli Defence force chose to put videos of the event on their website first, rather than waiting for the world's media to distribute it.)

*By the way that's not a criticism of the article, its a critique of the audience......

This review is in 3 parts. Firstly, technically, we can say that the iPad is:

- a tablet computer
- that plays TV
- it works like an iPhone except it won't make phone calls.
- it's bloody expensive for what it is
- you just know the next generation will be much cheaper, with all the slots, a keyboard, and be able to access the whole internet, and change the battery or anything else that needs replacing. They will be called lapphones or smartbooks or something like that

Thats all you need to know about it technically. Now, let us look at it socio-behaviourally, because this thing is not about the Technology. It's about belonging to the faith (aka being able to show the length of your fanboi d*ck). Consider the behaviour traits:

- You can walk into PC World and just buy one, but instead why not queue for 12 hours outside the Apple store?
- The demographic early owner is 92 % men
- Of the 92 per cent men in the queue 16 per cent had beards.
- 36 per cent were aged 26 – 39. 18 – 25s were the next largest group with 26 per cent. 11 per cent were older than Steve Jobs at 56 or over.
- 44 per cent in the queue had ever tried an iPad before. The majority – 56 per cent were buying the product based on reviews, international success and a blind faith in Apple products.

Most people said they would use it for browsing the internet, or reading, or work etc but its really just so they can tell other people that they have one on Twitter, and say existentialist things like:

The question is not—and never has been—do you need an iPad. The question is after you've had one, would you miss it. The answer is yes.

The third part of this review is to explain this phenomenon of the pathos of geek love, and how a closed, branded product makes right-on people who during the week opine for Open Source and Anti Capitalism etc etc go weak at their trembling knees for a bit of fluffy overhyped locked up tech bling. I turn to the Metrosexual Poseur's Gospel, "Stuff White People Like", Verse 20, "Apple Products":

Plain and simple, white people don’t just like Apple, they love and need Apple to operate.

On the surface, you would ask yourself, how is that white people love a multi-billion dollar company with manufacturing plants in China, mass production, and that contributes to global pollution through the manufacture of consumer electronic devices?

Simple answer: Apple products tell the world you are creative and unique. They are an exclusive product line only used by every white college student, designer, writer, English teacher, and hipster on the planet.

It is also important that white people are reminded of their creativity, and remember you need a Mac to creatively check email, creatively check websites, and creatively watch DVDs on planes.

White people also need iPods, iPhones, Apple TV, AirPort Express stations, and anything else that Apple will produce. Because you need to express your uniqueness by purchasing everything that a publicly traded company produces.

Here endeth the lesson. And that'll be £600 please - I need to get mine too

Queues started down Regent Street outside the Apple store from yesterday afternoon for today's launch.....FT:

....The lengthy queue outside - elongated perhaps by Apple’s policy of allowing buyers in only one at a time - attracted attention from passers by. Not everyone was as excited as those who emerged grinning from the store, one besuited chap calling the people lined up “saddos” while another lady was baffled when she found out what all the fuss was about: “I thought it was something important,” she gasped.

........

Many of the people I spoke to in the line seemed unaware that branches of Currys and PC World were also selling the iPad just a few minutes’ walk away, with no queue. Their face crumpled in anguish as they balanced leaving a queue to which they had already dedicated up to two hours of their morning....

And by tomorrow you'll be able to walk into the Apple store and get one too no doubt.....

Now, the newswires are full of Google buying the global online advertising industry - buying Admob being the latest - but that is not the most interesting Googlestory today.

No, the most fascinating is that Google's getting into the financial trading business - Businessweek:

Google, it turns out, has launched a trading floor to manage its $26.5 billion in cash and short-term investments. The hoard is the third-biggest cash pile among U.S. tech companies, after Microsoft (MSFT) and Cisco's (CSCO).

One of the company's goals is to improve the returns on its money, which until now has been managed conservatively. Google doesn't disclose its rate of return on investments or the targets it has set, but analyst Aaron Kessler of ThinkEquity estimates the company's 2010 return (including interest income and realized and unrealized gains before tax) at around 2.5 percent.

Strangely enough, of all the other things Google is trying, I think this one is in many ways more closely aligned to their skills - lots of quant needed, handlig large nimbers of transactions very well...plus, its a growth industry and is featherbedded by taxpayers in tough times

Google's trading room opened in January. The plan is to keep the war chest growing safely and ready to be deployed should the right mergers-and-acquisitions opportunities arise. The investment team has grown to more than 30 people, up from six three years ago. Many of the new arrivals are former Wall Streeters who left lucrative careers at Goldman Sachs (GS), JPMorgan Chase (JPM), and other banks. The man in charge is Brent Callinicos, Google's 44-year-old treasurer, who joined from Microsoft in 2007, back when Google had $11 billion in cash. "This isn't fast money, this is patient money," he says. His crew works in a recently remodeled finance building on the company's corporate campus in Mountain View, Calif., complete with a rock climbing wall, massage chairs, murals of tropical sunsets, and bamboo wall panels. In a second-floor space accessed by key card—the trading room—the Wall Street vets tap out trades at desks with six computer screens.

One of the things we've been watching with interest over the last 2 years is the growth of Internet based "Non Bank" banks - by and large totally unregulated entities dealing with large amounts of funds. We also suspect, as regulation catches up with the last cycle's Private Equity pirates, this area will only grow and grow.

Not that we think Google will behave with anything less than total integrity of course, as they are doing with the "accidental" WiFI data they collected

Last night (UK time) Facebook announced its new privacy settings. Much has been written about it - tactically, operationally, and practically.

In summary, Facebook has given the absolute minumum ground it needed to in order to get major policywatch bodies off its back in the short term, and only yielded after extreme pressure, and still has the system sharing lots of user data as the default option. And this is just one battle, not the end of the war (to use the Harvard Business Review analogy) and Facebook has not been routed, but has retired from the field in good order - for now.

What I want to do in this post is explain is why this will not be the last run-in that users will have with Facebook about privacy. To do so its useful to understand these two statements by Mark Zuckerberg in his announcement last night. First, on their blog:

I am pleased to say that with these changes the overhaul of Facebook's privacy model is complete. If you find these changes helpful, then we plan to keep this privacy framework for a long time. That means you won't need to worry about changes. (Believe me, we're probably happier about this than you are.)

And, in the press conference he said:

"It's not about the money. It might seem weird, we're not doing this to make more money. For all the people inside the company that could not be more true. It's such a big disconnect that we're doing this for the money."

This is what makes me sceptical about the Facebook Official Future, because he is being knowingly disingenuous in my view - and that tells us a lot to start with. It is about the money - Facebook needs to generate real revenues, sufficient to justify not just the existing $15bn valuation but also the monster IPO that its backers are looking for.

And thus Facebook has two totally competing objectives - the system dynamic diagram at the top explains this. What they have done today by rescinding some of their "un"privacy moves is try to create a more virtuous circle on the user side - increasing privacy increases trust, so users generate more data. This replaces the Vicious Cycle I wrote about yesterday, wherein reducing privacy reduces the amount of useful data that users will share.

The problem now is, after these changes Facebook makes less money than it did yesterday, and is less able to mine its user data and pass that on.

And as the diagram above shows, Facebook is actually operating in a 2 sided market in which one side - the Users - consume the service but pay nothing. It's real stakeholders - its backers - are Funders and Advertisers, and they want Facebook to make money (the former party) and get good user data (the latter party).

Even more worryingly, in both the vicious and virtuous cycles, Facebook potentially makes less money. The difference is timing. Facebook makes less money almost immediately it institutes increased privacy. However, if it removes privacy it makes a lot more money until the users catch on and the next furore starts and they then retreat from that position.

So the obvious thing to do is advance in miles and retreat in yards, as late as possible.

So the one thing we can predict with certainty is that the changes to Facebook's privacy model are not complete - because its about the money. Which is why we predict we will see - again and again - Facebook will make great strides in privacy removal, wait as long as it can, try and contain the fallout, and then try and retreat as little as possible. But we do suspect they will change their modus operandi - there were too many people coming out the woodwork to check on them this time, so we predict from now on in it will be a far more stealthy erosion.

The Harvard Business Review makes a point we made several days ago with respect to the problem with Facebok's business model:

Facebook's imbroglio over privacy reveals what may be a fatal business model. I know because my students at Parsons The New School For Design tell me so. They live on Facebook and they are furious at it. This was the technology platform they were born into, built their friendships around, and expected to be with them as they grew up, got jobs, and had families. They just assumed Facebook would evolve as their lives shifted from adolescent to adult and their needs changed. Facebook's failure to recognize this culture change deeply threatens its future profits. At the moment, it has an audience that is at war with its advertisers. Not good.

To understand this war we use the system dynamic model above. What it shows is that Facebook is essentially involved in a vicious circle in its business model. The initial condition is that Facebook set up a fairly secure environment for people to share data with their immediate social network, but has then steadily opened it up to try and monetise it. In doing this they are storing up the seeds of their own demise.

The underlying problem is that the average revenue per user on a social network from straight up Ads is very small - certainly not enough to justify a $15bn plus valuation! Thus they have to explore every facet of datamining possible to maximise that tiny revenue stream and potentially open up others.

So, what happens is this - initial condition is a fast growing and secure private social network. What they then do (starting with Beacon) is ratchet up the "unprivacy" scale ("Start Here" on the chart). Their aim is to expose more data and thus monetise it

The problem they have is that the user data on Facebook is not a static thing - it is managed by another agent in the system aka the user. The user (with a time lag, and in different ways) slowly - and over time more rapidly starts to get nervous about this, and starts to react. This takes the form of some or all of:

- no longer sharing as much data
- falsifying data
- interacting less with the system, slowly resetting their privacy controls etc
- no longer clicking on Ads
- as a last resort, exit (Facebook may well keep the data but it still loses value over time

The net effect is, en masse, to reduce the average value of the user to Facebook's real customer - the advertisers (A "customer" is someone who pays you money, a "User" doesn't and gets used - never confuse these two in a FreeConomic model)

The problem Facebook then has is that it needs to open up the privacy even more to extract the same amount of value. This is why we see the steady erosion of user privacy (see the diagram below to see how much they have moved since 2005)



But this action brings a user reaction, as more users get more skittish and more start to ratchet back on the data they display, thus reducing their value further. To prevent this Facebook tries to implement things like its Byzantine Privacy System but this in itself prompts further distrust, and so it goes on.

In other words a "vicious cycle" has opened up. This can to an extent be mitigated when there is still new user growth as the value of new users added hides the losses from old users ratcheting back - but unless broken it will ultimately be net value destructive for Facebook. It starts to rear its head above the waterline as new user growth slows, and/or if new users are more savvy and enter Facebook with all the privacy safeguards on high.

Their calculation right now must be about where they will be at the time of their IPO. Can they keep growth going at such a rate, and keep ratcheting down on the privacy, so that they can IPO before the vicious cycle becomes visible in the numbers.

To this end, they need attempts to regulate them to do "Opt In" approaches and to simplify the user privacy settings like they need a hole in the head. Little surprise then that the recent brouhaha has finally forced their hand and they have had to promise to essentially regulate themselves by changing the privacy settings rather than risk outside interference. Whether it, together with their lobbying Washington, will be enough remains to be seen - as they are being closely watched now from all over.

By the way, I always thought Facebook's best option would be to sell online goods that allow one to play the "game" of Facebook better. That is a far more benign way of monetising than strip-datamining.

Economics news from two companies we cover...Twitter and Google:

Twitter first - they are signalling that they too have to exit the Freeconomic world and make real money, and - as we (and, to be fair, many others) predicted at least a year ago, they will tax those companies who are trying to make their own fortunes by riding on top of Twitter's ecosystem. Not only that, but they will not let these 3rd parties insert their own Ad-clients into the stream - the rotters!. The only surprise is that anyone is surprised.

More amusing though is a lesson in Googlenomics - plus a video from their Chief Economist, Hal Varian. Googlenomics can best be defined as taking all the benefits (and I mean all....) and ignoring all the costs. They can't get away with that for their own accounts of course - accountancy rules see to that (everyone tries, of course - Enron ring a bell?) but when it comes to measuring your economic impact on the economy to try and charm Washington's legislators to look the other way, they make some claims that even a Web 2.0 PR would blush at:

....we conservatively estimate that for every $1 a business spends on AdWords, they receive an average of $8 in profit through Google Search and AdWords. Thus, to derive the economic value received by advertisers, we multiply our AdWords revenue on Google.com search results in 2009 – what advertisers spent – by 8.

So what's wrong with this picture, I hear you ask?

The argument made here - and pretty much throughout the report, in essence is that if you advertise on Google lo and behold then customers come and spend money with you, and Google counts that money you made as value they added all on their lonesome. They have been "conservative" in merely multiplying the Ad dollar's impact by 8. Their argument has 5 main holes:

Firstly - That claimed 8 fold impact is not on revenue, mind you - but on profit! Profit is what I have after I have deducted costs from my revenues. So adding $1 of Google Advertising COST generates 8 fold more PROFITS. Hell, that is a perpetual money making machine (or, as I strongly suspect, Googlenomics doesn't actually recognises costs and treats revenue as the same thing as profits )

Secondly, its a zero sum game - if I spend my Ad dollar elsewhere, presumably that outfit can also claim an 8-fold increase in impact. Big picture - Ad spending is a fairly constant % of GDP (1-2% depending on the country) and this number is changing very slowly year by year. So, if Google is taking that Ad dollar all it means is someone else is losing it.

Thirdly, its double counting. If everyone who supplies services to my company claims they therefore have an 8-fold knock on impact on my revenues (never mind my profits) because I can serve my customers , its a perpetual GDP-growth machine (better known as Greeceonomics ).

Fourthly, it pays absolutely no attention to, ahem, the costs of being a Google. Lets have for starters:

- An uncompetitive market for online Ads, run by in effect an operational near-monopoly. If there was more competition, Ad prices would be lower - now that would be a real benefit to my company.

- The reduction in revenue from all the content based industries that Google search and its other tools have hollowed out, never mind the digitisation of copyrighted books. While its been great for me to catch up on all that stuff on YouTube for free, don't kid yourself that its not a real but unaccounted for loss - or "market externality" as its called by economists - to someone else.

- As with IBM and Microdsoft before it, its sheer scale, use of its muscle and so on is actually probably having a value reducing effect on some new and high value markets. How many startups has Google bought and throttled? How many ideas have died as a piece of Google vapourware hits the A List blogs?

Fifthly, there is the cost to an economy of dealing with rogue companies. Google is no longer a "Do No Evil" company, the episodes with the WiFi sniffing, User Data holding despite EU orders, Buzz and email etc tell you that this company is going to cost a lot of money for regulators etc to watch and restrain.

Interestingly, they also count the (far smaller) donations to not-for-profits they have made, but interestingly enough do not claim a multiple impact here (odd that, if anything I would have thought it was easier to argue as most of those services would not exist otherwise).

What can one say - I just think its laughably ham fisted, if they were really trying to convince they should have put in a few negatives, the odd market externality or two.

Afterthought - What is really odd though is that they have not counted the impact of their major service - search - on reducing friction in transaction costs, which probably has had a huge impact - that is in my view wher the real impact is. The Ads and underlying datamining are actually the cost to the user of using the services where Google really adds value. But then, as I noted above, Googlenomics doesn't count costs....

Following the Facebook (un)privacy furore that Facebook initiated with its F8 revelations, they have now got to that stage in the process where the Apology and the Promise of Changes is made (see our analysis of the Facebook Privacy Foxtrot here). Today it came, in the Washington Post:

We have also heard that some people don't understand how their personal information is used and worry that it is shared in ways they don't want. I'd like to clear that up now. Many people choose to make some of their information visible to everyone so people they know can find them on Facebook.

That's the apology, in case you missed it - you dumb or something? And now, a restatement of the Credo:

We already offer controls to limit the visibility of that information and we intend to make them even stronger.

Here are the principles under which Facebook operates:

-- You have control over how your information is shared.

-- We do not share your personal information with people or services you don't want.

-- We do not give advertisers access to your personal information.

-- We do not and never will sell any of your information to anyone.

-- We will always keep Facebook a free service for everyone.

Cough! You Wot? The systemic abrogation of the first 3 (and some suspect 4) points is the reason so many people are up in arms, dont'cha know! Still, this sort of doublespeak is pretty bog standard Facebook practice, what is more interesting is what they will actually do about it all:

There needs to be a simpler way to control your information. In the coming weeks, we will add privacy controls that are much simpler to use. We will also give you an easy way to turn off all third-party services. We are working hard to make these changes available as soon as possible.

Ah, the fine balance between giving the users what they want (easy and powerful control of privacy) and what Facebook wants (economic advantage from passing their data on) . Still, lets see what actually gets done - that after all is the acid test.

But something we suspect we will never see from Facebook (probably until regulation enforces it) is to move the default mode to Opt In, rather than Opt Out.

So, to help that process along, I include the helpful cut-out at the top of the post.....

News today that Facebook has owned up to mistakes and will shortly announce steps to put it right- Mashable:

Hey,

We’ve been listening to all the feedback and have been trying to distill it down to the key things we need to improve. I’d like to show an improved product rather than just talk about things we might do.

We’re going to be ready to start talking about some of the new things we’ve built this week. I want to make sure we get this stuff right this time.

I know we’ve made a bunch of mistakes, but my hope at the end of this is that the service ends up in a better place and that people understand that our intentions are in the right place and we respond to the feedback from the people we serve.

I hope we’ll get a chance to catch up in person sometime this week. Let me know if you have any thoughts for me before then.

Mark

Apparently this was an email sent to Robert Scoble. Now Mashable, despite being very respectful of Facebook and doing the obligatory A List shtick of opining that "the privacy dustup will eventually blow over and Facebook will continue its relentless march to win the web" did make the point that:

To Facebook’s audience, it has seemed that Facebook either doesn’t know or doesn’t care about user concerns around privacy. If Facebook does indeed share user concerns and will soon make changes (as Mark explains), a very early mea culpa and increased communication with the press may have saved Facebook from a great deal of criticism.

In short: It’s great that Facebook is looking to improve its privacy settings, but explaining these moves earlier and more publicly may have been preferable.

It's not exactly surprising though - Facebook's standard modus operandi is arguably to push the boundary, see if there is any resistance, if there is they initially try and tough it out, then try and persuade the market that they are right and the users are wrong (initially by itself and then via proxies), and finally take a step back if there is still resistance (usually to come back at it a while later). We are about to enter the "one step back" piece of this cycle. This led me to write the tongue in cheek Facebook Privacy Reduction Decision Tree (in the style of Roger Mellie*) above.

It will be interesting to see if the proposed modifications don't help

As one of the Mashable comments puts it:

This isn't rocket science. Respect your customers. Don't spring stuff on them. Do not make "sharing" the default. Give people total control over their information and protect their privacy. Don't tell them what they want in terms of privacy and sharing, which is rude, patronizing and insulting. Especially aimed at someone who is old enough to be your mother.

The harder you have squeezed me to share, the more content I have removed from my profile, which now is almost everything possible. At this point, I will use no commercial apps, click on no ads, "like" no businesses of any kind. I do not appreciate nor will I participate in any FB presence which has been added with out my permission to sites like CNN. And this will continue to be MY policy until you prove you can be trusted.

Now, to return to the Mashable (et al) point that this will all blow over, I think the comment above implies that there is another game that may emerge here which I have captured in the system dynamic diagram below.



In short, Facebook is not the only actor in this game - the more privacy it erodes, the less people will put on it, so the less valuable their data is, so the more they have to erode privacy....you get the picture.

How likely is this scenario? At the moment the resistance to Facebook is mainly in Geekville and starting to permeate the more intelligent mainstream media like the NY TImes, Economist etc, but it is also starting to hit various regulatory bodies and if it gets on to the mass media, thats a real tipping point.

I'd predict ( along with Mashable, SAI, GigaOm and all the other A List Apologists), that this is not the brouhaha that will trigger the tipping point. But I don't think Facebooks ever upward march is assured. I think it will be the next one that hits the mainstream worry - and there will be a next one, its in the DNA (and probably the business plan too - that IPO and the need to declare numbers must be focussing minds somewhat).

Today's defence of Facebook by Tim O'Reilly (he wot coined Web 2.0) reinforced for me a very interesting thing - to wit, those rushing most to Facebook's defence are the A List Silicon Valley bloggers.

I had a quick look via Techmeme search at the whole Facebook / Privacy furore over the last few weeks, and who was pro and anti - the resulting impression is the 2 x 2 above - and it is a very curious thing indeed.

By and large the tech-informed Bloggerati have led the criticism of Facebook's privacy policy. By Bloggerati I mean technology bloggers, some of whom were in this space before "Web 2.0" was even coined, and who know it well. People like dana boyd, Stowe Boyd, Nick Carr and many others have all weighed in here.

Most of the serious Mainstream media have also weighed in - initially reporting on it, but increasingly coming out against the Facebook policies. I count the New York and London Times, Economist, Guardian, BBC et al as examples in this camp. (In fact its getting to the point that the "mass" mainstream media is starting to weigh in now)

Defending Facebook - well you'd expect the magazines such as Fortune to do so, their schtick is CEO and wealth worship and they tend to believe the ends justify the means. The FT and WSJ seemed to have started off in this camp - but seem in more recent days to have moved towards the other MSM as it becomes clearer what Facebook are up to.

Which leaves us with the curious spectacle of the Silicon Valley A List Blogs - TechCruch, Read Write Web, GigaOm and now O'Reilly - all have taken their turn defending Facebook, telling us that (in effect) privacy is dead, get used to it. It's curious in that - like the Bloggerati - they know what is going on (or not, in RWW's case ) and once upon a time supported all the good things Web 2.0 and its associated memeplex was about.

Now, however, they twist and turn on pinhead details, telling us that Facebook is doing the right thing for us all - when just about every other technologist, ethicist, moralist, liberalist, conservative, legislator, libertarian and librarian is getting increasingly concerned.

Why are they taking this stance? To what end?, is the question that we would ask. We are not certain, but analysis of past similar events leads to a number of potential reasons:

(i) Contrarianism as an intellectual model - and it also no doubt helps drive traffic (and comments - most of their articles are full of people furiously disagreeing with them). But its interesting that they have all chosen contrarianism right now.

(ii) Same Ideology/GroupThink - this is what they genuinely believe - except in many cases their new beliefs are somewhat Pauline - the Conversion seems quite recent in many cases (in a few cases junior staff were slagging Facebook off just before the Big Guns weighed in)!

(iii) Fear of the Subject's Wrath - this can be for overt reasons (criticising Adolf Hitler in 1930's Germany was a life-shortening event), more subtle (You'll never work in this town - or Valley - again) and even diabolical (You don't get invited to the best parties anymore)

(iv) Love of the Subject's Wealth - It has not been unkown in the past for people to radically alter their views on receipt of largesse from a rich sponsor.

Quite which of these factors (If any - there may be others) are driving our A List friends is unclear, but we would note that dependence on (or maybe proximity to) the Silicon Valley teat does seem to be a fairly good predictor of editorial viewpoint so far.....

Jus' Sayin......